Depreciation recapture
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Depreciation recapture is the USA Internal Revenue Service (IRS) procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset that had previously provided an offset to ordinary income for the taxpayer through depreciation. In other words, because the IRS allows a taxpayer to deduct the depreciation of an asset from the taxpayer's ordinary income, the taxpayer has to report any gain from the disposal of the asset (up to the recomputed basis) as ordinary income, not as a capital gain.
Depreciation recapture most commonly applies when dealing with the sale of improved real estate (such as rental property), as the value of real estate generally increases over time while the improvements are subject to depreciation.
Depreciation recapture in the USA is governed by sections 1245 and 1250 of the Internal Revenue Code (IRC). Any gain over the recomputed basis will be taxed as a capital gain in accordance with section 1231 of the IRC.
Other countries have similar procedures. In the UK, HMRC uses "negative depreciation".