The sale of rental real estate assets will generally result in depreciation recapture. Depreciation recapture occurs because the depreciation expense taken over the asset's life is a reduction to the asset's adjusted cost basis.
If the property used in a trade or business is held for at least one year before it is sold, the gain will generally qualify for Section 1231 treatment. Section 1231 is the best of both worlds for a taxpayer because the gains are treated as long-term capital gains, while any losses can be treated as an ordinary loss.
Within the Section 1231 amounts on the sale of real estate, there is often unrecaptured Section 1250 gain, which is a long-term capital gain, but it is subject to taxes at ordinary income tax rates, capped at a maximum of 25%.
In this video, I cover an LLC partnership example where we have a Section 1231 gain with unrecaptured Section 1250 amounts and varying applicable tax rates for different individual investors.
For the other videos covering these topics, check below:
1. How to Record Sale on Form 4797: https://youtu.be/wmgfRXVGZf4
2. Nonrecaptured Section 1231 Losses: https://youtu.be/uDzLCzRfcvk
For a larger database of tutorials, please visit our website and search for your question:
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