Rental real estate (whether commercial or residential) is Section 1250 depreciable property and is eligible for depreciation expense under Section 168. If a rental property is sold, the Section 1250 rules for gains and losses may create a depreciation recapture amount for the seller.

There is a big difference between unrecaptured Section 1250 gain, and ordinary Section 1250 recapture.

Unrecaptured Section 1250 gain is the most common character of income, where the gain is treated as longterm capital gain, but subject to ordinary income tax rates, up to a maximum of 25%.

Ordinary Section 1250 recapture is ordinary income subject to ordinary income tax rates, up to the maximum marginal tax rates for individuals. Ordinary Section 1250 recapture only applies where the real estate was depreciated using an accelerated method above the straightline depreciation.

In this example, we cover a fact pattern where an entity purchased a commercial property in 1981, applied the ACRS depreciation method from 1981 to 1986, then switched to straightline depreciation for 1987 and going forward.

For other videos on this topic, please see below:
2023 Form 4797 Example:    • IRS Form 4797: Rental Real Estate Sal...  
Am I a Real Estate Professional:    • SAVE TAXES with Real Estate!!!  Quali...  
Sale of Real Estate on Form 4797:    • How to Complete IRS Form 4797 For the...  
Section 1231 Gains on Sale of Rental:    • How to File IRS Form 4797  Nonrecapt...  
Section 1250 Depreciation Recapture:    • Real Estate Depreciation Recapture  ...  
Real Estate QBI Deduction:    • Real Estate QBI Deduction  Rev Proc ...  

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