The recapture of depreciation changes the character of the gain on a section 1231 asset from a(n) gain to income.

capital

ordinary

Explanation: A section 1231 asset is a kind of property that is held for more than one year as defined by section 1231 of the United States Internal Revenue Code. This property is real or depreciable assets. Section 1231 assets include: buildings, land, machinery, livestock, leaseholds etc.

For the recapture of depreciation to exist there must be a sale of a section 1231 sold at a gain. However the gain that is realised must be reported as an ordinary income for tax purposes. Thereafter if the selling price of this asset is higher than the tax basis then the difference is essentially recaptured. This done by changing it from a capital gain to ordinary income.

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answer/// real gdp decreases to y3 and the price level falls to p3;