Definition
Sections 1245 and 1250 define how depreciation is recaptured on the sale of personal property and real property, respectively.
How It Works
Section 1245 applies to depreciable personal property such as equipment and the shorter-life components identified in cost segregation, recapturing depreciation as ordinary income. Section 1250 applies to real property, with real estate depreciation generally recaptured at a maximum 25% rate.
Example
When a building with a prior cost segregation study is sold, the personal-property components fall under Section 1245 recapture while the structure falls under Section 1250.
Who It Applies To
Owners selling depreciated business or real property.
Watch-Outs
Cost segregation increases the share of value in 1245 property, which can raise the ordinary-income portion of recapture at sale, a trade-off against the earlier acceleration benefit.
