basically, whether or not you took depre on the garage, when you dispose of it then you need to recapture the unrecaptured depreciation on your return; depreciation recapture is the gain received from the sale of the garage that must be reported as income on your return(when you dispose of it for a gain). Depreciation recapture is assessed when the sale price of an asset exceeds the tax basis or adjusted cost basis of the garage. The difference between these figures is thus "recaptured" by reporting it as income and is taxed as ordinary income at 25% aslongas your tax bracket is 25% or higher. the first step in evaluating depreciation recapture is to determine the cost basis of the garage. The original cost basis is the price that was paid to acquire the garage. The adjusted cost basis is the original cost basis minus any allowed or allowable depreciation expense incurred. For example, if business equipment was purchased for $15k and had a depreciation cost of $2k per year, its adjusted cost basis after four years would be $15k- ($2k x 4) = $7k.
The depreciation would be recaptured if the equipment is sold for a gain. If the equipment is sold for $10k, the business would have a taxable gain of $10k - $7k = $3k It is easy to think that a loss occurred from the sale since the asset was purchased for $15k and sold for only $10k. However, gains and losses are realized from the adjusted cost basis, not the original cost basis.however if you dispose of th e garage at a loss, imean adjusted basis is larger than selling price, then no depreciation rercapture.