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how to fire your lawyer letter Real estate investors who qualify for the pass-through income deduction may deduct up to 20 of their net business income from their income taxes, subject to certain restrictions. In order to qualify, the investor must own a pass-through business and have qualified business income (QBI). The ATO allows a tax deduction for capital works of 2.5 pa of the cost over a period of 40 years after the capital works were completed, for investment properties. nbsp;If the tax deduction is not claimed when available, the tax deduction is lost. The IRS remembers the depreciation deductions you took -- and they'll want some of that money back. That's what depreciation recapture does. It's based on your ordinary income tax rate and capped at 25. It applies to the part of the gain that can be attributed to the depreciation deductions you've already taken. You'll use Form 4797, Sales of Business Property, to report depreciation recapture.