I received this question on social media. I answered it and will answer here, with the standard disclaimer that you shouldn’t take this as tax advice for your particular situation, but as information on where to start getting what you need to make a determination for your particular tax situation. Know that tax laws change and that it can be difficult to fully cover all aspects of a tax situation or topic in one article, no matter how hard I try. Below is my answer to the person who asked the question, with some substantial editing.

The reason it is difficult to find anything on this topic that explicitly answers this question is because of how poorly IRS publications and instructions are often written, because of how our legislators write laws and changes to laws, and how government employees write regulations. AND because you likely don’t understand how to calculate the basis. AND you likely don’t understand gain. I won’t teach you how to calculate the basis. But I’ll discuss what causes depreciation recapture to apply whether or not depreciation is taken. A very simplified explanation of gain for conceptual understanding (remember very simplified = inaccurate and incomplete): gain = sales price – adjusted basis. The part of adjusted basis that is important for us is that allowed or allowable depreciation decreases your basis. So if you sell a property for 200K that you bought for 100K and depreciated for 50K, your gain is NOT 100K. It is 150K. So it is easy to see that you will get taxed on that portion of the gain due to depreciation (in most cases) and the rate is different than the section 1231 gain (think long term or short term capital gains tax rates-what people normally think of for capital gains taxes) due to other sections of the tax code. You won’t find anything in the pubs or instructions or the tax code that says the words “Depreciation recapture applies whether or not you depreciated your property”. One reason for that is that there are multiple versions of depreciation recapture -and some of them don’t always happen or they don’t happen at a different tax rate than other capital gains. An example of why I don’t like it when people make absolute statements that aren’t absolute.

First the IRS pubs. However, readers should be aware that IRS pubs are dangerous. They often have sections that are written poorly, even inaccurately, and they certainly leave information out. They are supposed to help taxpayers apply tax authority properly, but in some cases they essentially mislead and if they mislead you -if they don’t match tax authority it is NOT the IRS’s fault you followed the pubs they wrote, it is your fault. Court cases the IRS has won backs them up on this.

Pub 527 Residential rental property on page 18 states: “You should claim the correct amount of depreciation each tax year. If you didn’t claim all the depreciation you were entitled to deduct, you must still reduce your basis in the property by the full amount of depreciation that you could have deducted. For more information, see Depreciation under Decreases to Basis in Pub 551.” IRS pub 523 Selling Your Home page 8-9 also sends you to Pub 551 Basis of Assets. Pub 551 page 8 clearly indicates that depreciation allowed or allowable decreases your basis. So we know that decreasing your basis increases your gain. So what determines how that gain is taxed? The portion due to depreciation allowed and allowable? Well in the Pubs, that is discussed in Pub 544 Sales and Other Dispositions of Assets. It does touch on this topic, however in tax technical terms: those portions of the pub are crap. The applicable discussions are confusing and one can easily come to the wrong conclusion or come to the right conclusion based on the wrong part of the pub. There is a small paragraph that discusses Unrecaptured section 1250 gain on page 54 that sends you to a reference for calculating it. The big problem lies in Pub 544’s discussion of the other 1250 gain that is regarding what is known as “additional depreciation” which doesn’t apply for most taxpayer rental property situations and can be confusing if read.
But flowing through all those pubs, the logical conclusion is that the depreciation recapture applies when depreciation is allowed or allowable. Whether it is taken or not is not relevant.

Now the tax code. I won’t step through them all like I did the IRS publications. So for the tax code the IRC and in some cases the applicable CFR that are important include, but not exclusively: section1231, section 1250, section 167, section 168, section 1016, and section 1 oddly enough.

Section 1016 is what tells us the basis is adjusted, decreased, for the depreciation allowed or allowable. The words are different, but that is what it means. For this topic area.

Section 1 is what makes section 1250 discussion more complicated because the unrecaptured section 1250 gain that most landlords are concerned about isn’t actually discussed in section 1250 which focuses on something called “additional depreciation” which does not apply to most landlord situations today.
Section 1250 only requires that this additional depreciation be taxed at ordinary income tax rates up 25%.
But section 1(h) subjects unrecaptured Sec. 1250 gain to a maximum tax rate of 25%. Unrecaptured Sec. 1250 gain is the long-term capital gain that would be treated as ordinary income under Sec. 1250 if all depreciation was treated as additional depreciation

You don’t get your answer of “why does depreciation recapture apply to depreciation not taken but allowed” with one section of the tax code. But rather through the application of most if not all of those sections mentioned above.

Unfortunately there are both taxpayers and tax professionals who intentionally don’t depreciate residential rental property so they don’t have to be subject to depreciation recapture. But as you can see from the above, that is wrong. They are still subject to depreciation recapture based on the depreciation allowed or allowable. There are methods available to fix that error. Unfortunately many taxpayes and tax professionals fix that error incorrectly as well.