Tax deductions can be taken as a property depreciates. If the property is sold at a higher value than it's depreciation deductions would show, depreciation recapture tax is due on the difference at 25%.
Exchanges of like-kind property ordinarily do not trigger any depreciation recapture (that is, deductions taken in excess of straight-line depreciation under Section 1250 I.R.C.). Where there is an exchange into a property of lower value, or where the exchange consists partly of cash and property not of a like -kind, consideration must be given to the depreciation recapture provisions of Section 1250 and the higher capital gain tax rates for depreciation recapture.
The full or partial recharacterization of capital gain income as ordinary income upon the disposition of depreciable property to the extent of depreciation deducted through the date of disposition.