Section 1250 Property (Depreciable Real Property)

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Section 1250 Property (Depreciable Real Property)

Generally, real estate investment property, as defined under Section 1250 of the Internal Revenue Code, must be depreciated for income tax purposes.  The depreciation method used depends on a number of factors including when the investment property was placed into service, the type of investment property, and the depreciation methods allowed under applicable tax laws and regulations at the time the investment property was placed into service.

But a more complex set of rules comes into play when the asset sold is depreciable real estate. This is so because, in that case, a maximum rate of 25% will apply to what's called unrecaptured section 1250 gain and a maximum rate of 15% will apply to the balance of the gain. "Unrecaptured section 1250 gain" refers to the portion of gain that is eligible for capital gain treatment even though it is attributable to previously allowable depreciation. A further complication is that the portion of the gain that is unrecaptured section 1250 gain depends, as shown below, on when the property was placed in service.

Property placed in service after 1986. For real estate placed in service after 1986, all depreciation deductions allowable before the sale of the real estate give rise to unrecaptured section 1250 gain. Thus, if you sell, at a gain of $200,000, a building on which $90,000 of depreciation deductions were allowable to you through the time of sale, $90,000 of the gain is unrecaptured section 1250 gain that will be taxed at a rate of 25%. The remaining $110,000 of the gain will be taxed at a rate of 15%.

Property placed in service before 1987 and after 1980. For real estate placed in service before 1987, but after 1980 (pre-1987 realty), the treatment of gain on sale depends on whether the real estate is residential or nonresidential.

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RICHARD ZIMMERMAN

THIS IS GOOD INFORMATION, HOWEVER I HAVE COMMERCIAL PROPERTY THAT WAS PUT IN SERVICE ON 10/1/80 WHERE DO I FIND INFORMATION ON HOW TO TREAT THE CAPITAL GAINS

March 27, 2011 05:30 PM #1
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Anonymous
Gene Mulrenan, CPA (NY & NJ)

 Very clear concise S 1250 explanation Mr Monk. I have several tax clients and all have problems understanding why they have to pay this cryptic 25% tax on depreciation gains. Particularly older clients - I can hand them this and hopefully this will help them understand.

Thank you.

 

Gene Mulrenan, CPA

 

June 09, 2011 09:05 PM #2
Anonymous
Anonymous
joyce

PLEASE, find it in your HEART to HELP ME with form 4797 (sales of Business Property)! I know how to do taxes,

but I need Help with this form. If you can do a practice copy of form 4797 and send it to my e-mail address, PLEASE,

it would be a BLESSING!!!  A. rental property, B. date aquired 9/30/1984, C. Sold 8/29/2012, D. Gross Sale Price is

110,000.00, E. Depreciation is 48,000.00 (this amount is 1984 to 2012), F. Cost or other basis is 72,070.00 and G.

Gain is 85,930.00. I was in the process of filling out Part III when it seem like a St Joseph Brick HIT me in the HEAD!!

I complelted # 20, 21, 22, 23, and 24 and than the St. Joseph Brick HIT ME....lol  PLEASE, please HELP ME with 25

to whatever applies! I think Section 1250 is for the house and 1245 for the land, I THINK!!!  I will also fill out a

Schedule D Part II # 8.

 

Thanks in advance and God Bless You and YOUR MIND!

Joyce

 

PLEASE, please

 

April 12, 2013 10:31 AM #3
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Rainer
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Steven Monk

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