The higher rates of 25% for certain depreciated property (technically unrecaptured IRC
section 1250 gain) and 28% for collectibles continues to apply post-TCJA.
Meanwhile, the portion of the gain due to accumulated depreciation on real property is classified as Unrecaptured
Section 1250 gain and is subject to a maximum preferential tax rate of 25%.
A cost segregation study accelerates depreciation, by classifying Internal Revenue Code (IRC)
Section 1250 property costs to IRC Section 1245 property.
The portion of any unrecaptured
section 1250 gain from selling
section 1250 real property is taxed at a maximum 25 percent rate.
Sale Sale Adjusted Price Expense Basis Gain Inventory $10,000 $500 $8,000 $1,500 Land 42,000 2,100 15,000 24,900 Building 48,000 2,400 36,000 9,600 Machine A 71,000 3,550 63,800 3,650 Machine B 24,000 1,200 22,040 760 Truck 6,500 325 5,376 799 Goodwill $201,500 925 -0- 17,575 $220,000 $11,000 $150,216 $58,784 The building was acquired in 2002, the year the business began, and it is
Section 1250 property.
(3q) In the case of an installment sale of IRC
Section 1250 property (i.e., generally, most real estate subject to the allowance for depreciation under IRC Section 167, (4q) regulations state that unrecaptured IRC
Section 1250 gain (which is generally taxed at a maximum marginal rate of 25%--see Q 7524) must be taken into account before any adjusted net capital gain (taxed at a maximum of 15%/0%--see Q 7524).
In summary, there are essentially four groups of capital assets: (A) short-term capital assets which are taxed at normal rates; (B) 28 percent capital assets, generally consisting of collectibles gain or loss, and IRC Section 1202 gain (qualified small business stock, see page 508); (C) 25 percent capital assets, consisting of assets that generate unrecaptured IRC
Section 1250 gain; and (D) 15 percent and 5 percent capital assets, consisting of all other long-term capital assets.
Section 1250 requires two reports regarding potential foreign military sales of the F-22.
Section 1250 applies to depreciable real property and, for property purchased in or before 1986, the difference between accelerated and straight-line depreciation.
Taxpayers that have gains that are from the sale of
Section 1250 assets pay a maximum rate of 25% (the "25-percent basket") on the unrecaptured depreciation (
Section 1250 recapture is discussed later in this chapter).
Cost Segregation--A cost segregation study to determine whether real property qualifies as Section 1245 personal property (qualifying for a shorter write-off periods) or
Section 1250 real property (longer write-off periods) can mean significant savings.
