THE "RECAPTURE" OF EXCESS TAX DEPRECIATION ON THE SALE OF REAL ESTATE

Present federal income tax rules for recapture of gain on real estate inefficiently deal with excessive depreciation. If tax depreciation is excessive, the taxpayer forfeits some of the gain by selling the building early in its life even when the gain is taxed at capital gains rates. Some recapture is appropriate for sales of very old buildings, and a formula to accomplish this is proposed. If depreciation on buildings is excessive, it should be cut back for developer-holders as well as developer-sellers.