Section 1250

Section 1250 of the Internal Revenue Code (IRC) is a provision that governs the taxation of gains from the sale of real property. The section is divided into two parts: Section 1250(a), which applies to depreciable real property, and Section 1250(b), which applies to non-depreciable real property.

**Section 1250(a)**

Section 1250(a) provides for the recapture of depreciation deductions that were taken on depreciable real property. When depreciable real property is sold, the gain on the sale is first treated as ordinary income to the extent of the depreciation deductions that were taken. Any remaining gain is treated as capital gain.

The amount of depreciation recapture is determined by multiplying the adjusted basis of the property by the applicable depreciation recapture rate. The depreciation recapture rates are as follows:

* 25% for property that was placed in service before 1981
* 40% for property that was placed in service between 1981 and 1986
* 25% for property that was placed in service after 1986

**Section 1250(b)**

Section 1250(b) provides for the recapture of gain on the sale of non-depreciable real property. The gain on the sale of non-depreciable real property is treated as ordinary income to the extent of the excess of the fair market value of the property over its adjusted basis.

The amount of gain that is treated as ordinary income under Section 1250(b) is limited to the amount of gain that would have been taxed as ordinary income if the property had been depreciable real property.

**Example**

A taxpayer sells a depreciable real property that has an adjusted basis of $100,000 and a fair market value of $150,000. The taxpayer has taken $50,000 of depreciation deductions on the property. The amount of depreciation recapture is $25,000 (50,000 x 25%). The remaining gain of $25,000 is treated as capital gain.

**Conclusion**

Section 1250 is a complex provision that can have a significant impact on the taxation of gains from the sale of real property. Taxpayers should consult with a tax advisor to determine how Section 1250 will apply to their particular situation.