While the explanations given are correct
The explanation by HalAl is NOT correct.
The example says depreciation needs to be recaptured on the house that was demolished and that's wrong. The demolished house is worth $0 after demolition...it was not sold or disposed of so the owner got $0 for it AND the depreciation deductions DON'T get added to the newly built house.
There is no recapture of the depreciation taken on the demolished house.
