Question

If a taxpayer sells §1250 property, which of the following is NOT true?

Gain is ordinary income to the extent of depreciation in excess of straight-line depreciation.

Unrecaptured §1250 gain is reported as ordinary income to the extent of any unrecaptured §1250 losses claimed in the five preceding years.

Unrecaptured §1250 gain is subject to a maximum tax rate of 25%.

No part of the gain is treated as ordinary income if the property was depreciated using straight-line MACRS.

Answer 1

Answer

The statement which is NOT true is;

Unrecaptured §1250 gain is reported as ordinary income to the extent of any unrecaptured §1250 losses claimed in the five preceding years.

As per IRS; if a taxpayer sells a §1250 property, the resulted gain will be treated as ordinary income if the depreciation exceeds the depreciation as per straight line method. The difference between actual depreciation and straight line depreciation is the ordinary income. IRS requires the §1250 property to be depreciated using straight line method. If the property is depreciated using straight line method, there will be no ordinary income as well as gain. The unrecaptured §1250 gain is taxed at a maximum tax rate of 25%. Unrecaptured §1250 gain is considered as capital gain and not as ordinary income. This capital gain can be offset by capital losses.