In recapture calculations, a negative balance indicates what?

In recapture calculations, a negative balance indicates what?

• A. Recapture income.
• B. Terminal loss.
• C. Capital gain.
• D. No tax impact.

Answer: (D)

When you dispose of a depreciable asset, you compare the sale proceeds to the undepreciated cost base (UCC) to decide if you have recapture or a terminal loss. Recapture increases ordinary income to the extent that the sale price exceeds the UCC (up to the total CCA previously claimed). If the sale price is less than the UCC, you don’t have recapture; instead you may have a terminal loss, which is a separate deduction. If the recapture calculation comes out negative, there’s no amount to include as recapture income. In other words, there is no tax impact under recapture rules for that disposition. Any tax effect would come from other consequences of the sale, such as a terminal loss, but not from recapture. For example, if the sale price is below the UCC, you’d typically have a terminal loss rather than any recapture, so the recapture portion is zero.

When you dispose of a depreciable asset, you compare the sale proceeds to the undepreciated cost base (UCC) to decide if you have recapture or a terminal loss. Recapture increases ordinary income to the extent that the sale price exceeds the UCC (up to the total CCA previously claimed). If the sale price is less than the UCC, you don’t have recapture; instead you may have a terminal loss, which is a separate deduction.

If the recapture calculation comes out negative, there’s no amount to include as recapture income. In other words, there is no tax impact under recapture rules for that disposition. Any tax effect would come from other consequences of the sale, such as a terminal loss, but not from recapture. For example, if the sale price is below the UCC, you’d typically have a terminal loss rather than any recapture, so the recapture portion is zero.