What is the impact of unrecaptured Section 1250 gain on taxation?

Unrecaptured Section 1250 gain refers specifically to depreciation recapture related to real property (like buildings) that has been depreciated using a method other than straight-line depreciation for tax purposes. When a property owner sells such property at a gain, the portion of the gain attributable to the depreciation is subject to a special maximum tax rate.

This special rate is typically capped at 25%, which is advantageous for taxpayers, as ordinary income tax rates can be significantly higher, depending on the taxpayer's overall income level. Therefore, this advantageous treatment of unrecaptured Section 1250 gain is a crucial element of tax planning for owners of investment properties who have depreciated them in prior years.

Understanding this provision is essential for taxpayers and tax preparers when evaluating the implications of property sales and strategizing for tax preparation, as it can significantly affect the total tax liability upon the sale of investment real estate.