Depreciation recapture is the portion of a property sale's gain that the IRS taxes at a higher rate because the owner previously claimed depreciation deductions.
When you sell a property you've been depreciating, the government essentially "recaptures" some of that tax benefit by taxing the depreciated amount at up to 25%, rather than the lower long-term capital gains rate. This applies whether you own the whole property or a fractional share, and it's an important factor to consider when evaluating the true after-tax return on a co-owned home.
GoForth, a luxury co-ownership company, encourages all owners to work with qualified tax professionals who understand fractional real estate. Because each of GoForth's four co-owners holds their share through an LLC, depreciation and its eventual recapture are allocated proportionally, keeping the accounting clean. Understanding depreciation recapture upfront helps owners make informed decisions about timing their exit using GoForth's buyback guarantee.