Recaptured depreciation refers to what?

Recaptured depreciation specifically refers to the payback of deferred taxes associated with depreciation. When property is sold, any depreciation that has been claimed on the property for tax purposes is "recaptured," which means that the IRS requires the taxpayer to pay taxes on that depreciation at the time of sale. This is significant because it impacts how much tax a property owner will owe once they sell an asset that has appreciated in value, effectively reversing some of the tax benefits received during the time the property was held.

In practical terms, if an investor has depreciated an asset over time, the tax benefits derived from those depreciation deductions will be subject to taxation upon the sale of the property. This ensures that the tax advantage gained from depreciation is not permanent and is ultimately accounted for in the tax system when the property changes hands.

In contrast, the other options do not encapsulate this concept. The total value of a property or a specific tax rate for property sales does not address the mechanics of how depreciation impacts tax liability at the point of sale. Additionally, stating that recaptured depreciation applies only to commercial properties is inaccurate, as it applies to any depreciable property, whether residential or commercial.