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What is Recovery Property?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 May 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Recovery property is a particular classification of real estate that was used in the United States. The function of this type of classification had to do with property used for business purposes that was placed into service at some point between the years 1980 and 1987. Property that falls into this category was eligible for inclusion in a special process of depreciation for tax purposes, allowing owners to enjoy a significant tax deduction. Once classed as recovery property, the real estate was covered under that is known as the Accelerated Cost Recovery System or ACRS. This system was replaced in 1986 by a slightly altered system known as MACRS or the Modified Accelerated Cost Recovery System.

With recovery property, the idea was to provide additional tax benefits for businesses that acquired real estate for use in a business enterprise. Doing so would make it possible for the owners to enjoy depreciation on the property that could be claimed on each annual tax return. At the same time, the approach allowed the businesses to retain more capital that was in turn used to expand operations or in some other way stimulate the economy.

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In order to participate in the original ACRS and later the MACRS, the real estate in question had to meet specific qualifications. This included providing ample proof that the property had actually been pressed into service for business purposes during the time frame allowed. Typically, each property making claim to this classification was evaluated individually. If approved, the business enjoyed a more liberal schedule for depreciation for however many years it would take to reach full or complete depreciation of the asset.

At present, the recovery period associated with the recovery property approved under the terms of the old ACRS are long since expired and have been fully depreciated. From time to time, businesses may attempt to invoke this type of depreciation, making claim that the property was not fully depreciated in years past. When this occurs, careful scrutiny of the real estate itself, the original date of acquisition and the amount of depreciation claimed up to the current period is likely to occur, and may take several months to complete. In the event that the claim is found to be valid, the claimed depreciation on the recovery property is allowed and if there are no other questions about the filed return, it is accepted and processed accordingly. Should the claim for depreciation be disallowed, filing a revised return is normally recommended.

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