Section 1250 Property refers to a category of real property that is subject to depreciation under the Internal Revenue Code. It includes buildings and improvements that are not classified as residential rental property, as well as any non-residential real property that has been depreciated using the straight-line method.
The key characteristic of Section 1250 Property is that it typically involves real estate that has been improved or constructed for business use. When sold, any gain on the sale of Section 1250 Property may be subject to depreciation recapture, meaning that a portion of the gain attributable to prior depreciation deductions may be taxed at a higher rate than the standard capital gains rate.
For example, if a company owns a commercial building that it has depreciated over time and later sells that building for a profit, the IRS may require the company to "recapture" the depreciation previously taken, leading to potential tax implications on the gain from the sale.
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