What is Unrecaptured section 1250 gain?
In short
Unrecaptured section 1250 gain is the part of an individual's gain on selling depreciable real property that comes from straight-line depreciation already taken. It is taxed at a maximum rate of 25%.
Key takeaways
- Gain above the depreciation taken is taxed at the usual long-term capital gain rates.
- Real property placed in service after 1986 uses straight-line depreciation, so there is generally no ordinary-income recapture.
- Corporations face a different rule that treats 20% of the depreciation as ordinary income.
Example
A building bought for $500,000, depreciated by $120,000 and sold for $600,000: $120,000 is taxed at up to 25% and $100,000 at capital gain rates.
Where it's tested
TCP: Property Transactions: Advanced Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
An individual sells a rental building at a gain. Part of the gain reflects straight-line depreciation taken. That portion (unrecaptured Section 1250 gain) is generally taxed at a maximum rate of: