My father has some real estate he would like to sell. I'm trying to estimate the capital gains taxes. From what I've read, the tax rate depends on whether the real estate is Section 1250 real property. What is that?
I tried to find the answer on the IRS website. What it says, specifically, is that an exception to the standard 15% capital gains tax rate applies to "Section 1250 real property that is required to be recaptured in excess of straight-line depreciation". When I try to look up "Section 1250 real property", I find that it is defined as "all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property". That is a very confusing definition, and I have no idea whether my father's property falls into the category. Can anyone provide a simpler explanation that might help?
Also, from what I understand, the 15% capital gains rate is scheduled to increase to 20% in 2011. Will there be a similar increase in the
25% tax rate for Section 1250 property?-TC
========================================= MODERATOR'S COMMENT: That's not a bad definition at all. If you sell a home with a refrigerator in it, the fridge is section 1245 property. The land is Section 1231 property and land is not depreciable. The building itself and all attached structures such as a deck would be 1250 property. Assume for your case here that Structures = Section 1250 property. But that may not solve your problem. You might be trying to figure out where to calculate and list the Unrecaptured Section 1250 Gain, and now have to deal with an entirely more complicated topic! I'll leave this for others to answer.