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respectively. Sec. 1231(a)(1). Accordingly, the gain
petitioners recognized on the sale of the investment property is
long-term capital gain.
Pursuant to section 1250(c), section 1250 property is any
real property subject to the allowance for depreciation that is
not section 1245 property. The investment property in the hands
of petitioners was real property subject to the allowance for
depreciation. Further, petitioners’ investment property is not
of any kind described in section 1245(a)(3). Therefore,
petitioners’ investment property is also section 1250 property.
Gain realized on the disposition of section 1250 property is
recaptured as ordinary income, rather than capital gains, to the
extent that the depreciation amount allowed or allowable exceeds
the amount of depreciation that would have resulted under the
straight-line method. See sec. 1250(a). Pursuant to section
1250(a)(1)(A), the section 1250 gain shall be recognized as
ordinary income notwithstanding any other provisions of subtitle
A of the Code. Therefore, since petitioners’ section 1231
property is also subject to depreciation recapture under section
1250, the amount of the long-term capital gain would be reduced
by the amount of section 1250 gain recaptured at ordinary income
tax rates.
The 1997 Act amended section 1(h) to include section
1(h)(1)(B), which taxes unrecaptured section 1250 gain at a
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Last modified: May 25, 2011