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capital gains tax rate of 25 percent. Pursuant to the pertinent
part of section 1(h)(6)(A), the term “unrecaptured section 1250
gain” means the amount of long-term capital gain which would be
treated as ordinary income if section 1250(b)(1) included all
depreciation. Accordingly, under this definition, unrecaptured
section 1250 gain would include all the depreciation allowed or
allowable on the property.
The unrecaptured section 1250 gain definition in the 1997
Act effectively eliminates the possibility of any section 1250
gain’s being recaptured at ordinary income tax rates because all
the depreciation is considered unrecaptured section 1250 gain,
taxed at 25 percent. See sec. 1(h)(1)(B). However, since the
section 1250 gain rules apply notwithstanding any other
provisions of subtitle A of the Code and section 1(h) is included
in subtitle A, the section 1(h)(6)(A) definition of unrecaptured
section 1250 gain cannot override the section 1250(a) ordinary
income treatment of section 1250 gain recapture.
Recognizing that this conflict existed, Congress included
technical corrections in the Internal Revenue Service
Restructuring and Reform Act of 1998 (1998 Act), Pub. L. 105-206,
sec. 6005(d), 112 Stat. 800, which revised and clarified the
definition of unrecaptured section 1250 gain under the 1997 Act.
Under the 1998 Act, the definition of unrecaptured section
1250 gain was amended to include long-term capital gain that is
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Last modified: May 25, 2011