A building, termed "section 1250 property", is generally 39-year property eligible for straight-line depreciation and equipment or furniture termed "section 1245 property", is personal property.
When reclassifying Section 1250 property costs to Section 1245 property, a cost segregation study may segregate or reclassify a portion or percentage of a building's components (electrical, plumbing, mechanical, etc.) to Section 1245 property.
Such property typically will be treated as IRC section 1245 property
. In Fox Photo Inc.
Specifically, the purpose of section 1245 is to require a taxpayer who enjoyed the tax benefit of ordinary depreciation deductions from section 1245 property
(153) to "recapture" the gain attributable to those deductions as ordinary income ("Recapture Income") upon the disposition of such property.
Section 1245 property
(subject to recapture of depreciation as ordinary income upon disposition) that is leased or held for leasing,
The most common type of "Section 1245 property
" is tangible or intangible personal property used in a trade or business.
In addition, a straight-line method election for regular tax and AMT under section 168(g)(7) would eliminate any ACE adjustment on newly acquired section 1245 property
Prior to SBJA 2010, IRC section 179 property included any tangible property to which IRC section 168 applies, or computer software to which IRC section 167 applies, which is IRC section 1245 property
and is acquired by purchase for use in the active conduct of a trade or business.
Cost segregation generally reclassifies section 1250 property as section 1245 property
for depreciation purposes.
Such property is referred to as qualified Liberty Zone "property." However, qualified Liberty Zone "leasehold improvements" are not considered qualified Liberty Zone "property." But, having Liberty Zone leasehold improvements eligible for a 5-year recovery does not preclude the taxpayer from conducting a cost segregation study to re-classify certain non-bonus applicable section 1250 property to section 1245 property
so as to take advantage of 5 and 7-year recovery periods.
A study will convert certain realty (Section 1250 property) to short life, (typically 5 and 7 years) Section 1245 property
. Upon sale, Section 1250 property is subject to recapture at a 25% capital gain tax rate to the extent of depreciation taken.
This sum is increased by any special basis adjustment described in section 743(b)(1) or [decreased by any special basis adjustment described in section 743(b)(2)] in respect of the property that was reduced, but only to the extent such amount was applied to adjust the amount of the deductions allowed or allowable to the partner for depreciation or amortization of section 1245 property
attributable to the periods referred to in paragraph (a)(2) of regulations section 1.1245-2.