Unrecaptured section 1250 gain is the part of long-term gain from depreciated real property that is subject to a special capital-gain rate calculation.
Unrecaptured section 1250 gain is the part of long-term gain from certain depreciated real property that is treated separately in the capital-gain tax calculation. In plain language, it is not ordinary depreciation recapture in the same way as many equipment sales, but it is also not always taxed like the lowest-rate long-term capital gain.
Unrecaptured section 1250 gain matters because rental and business real-estate sales can produce a layered tax result. A taxpayer may first work through Form 4797, Section 1250 Property, and Section 1231 Property, then still need the Schedule D worksheet that isolates the unrecaptured section 1250 gain amount.
It also matters because the phrase sounds like ordinary recapture, but it usually functions as a special long-term capital-gain rate bucket. IRS Schedule D instructions route taxpayers to the Unrecaptured Section 1250 Gain Worksheet when they sold depreciated section 1250 property held more than one year, received certain installment payments, received a Schedule K-1 reporting the amount, or received certain fund or REIT reporting.
| Term | Main idea | Why it is different |
|---|---|---|
| Unrecaptured section 1250 gain | Special long-term gain bucket tied to depreciation on section 1250 property | It is a rate-computation concept, not the broad property class itself |
| Section 1250 Property | Generally depreciable real property | Section 1250 property is the asset class; unrecaptured section 1250 gain is a possible gain category from that asset |
| Depreciation Recapture | Rule that can recharacterize gain because of prior depreciation | Unrecaptured section 1250 gain is generally handled through the capital-gain rate worksheet rather than the same ordinary-income pattern as section 1245 property |
| Section 1245 Property | Generally depreciable personal property | Section 1245 commonly recaptures depreciation as ordinary income, while section 1250 real property can produce this special capital-gain bucket |
| Schedule D | Summarizes capital gains and losses | Schedule D is where the worksheet-driven rate treatment ultimately matters |
Unrecaptured section 1250 gain appears after the taxpayer has identified a sale or other disposition of section 1250 property held more than one year. IRS Schedule D instructions tell taxpayers to complete the Unrecaptured Section 1250 Gain Worksheet when relevant events occur, including a sale of section 1250 property, installment payments from section 1250 property, certain Schedule K-1 amounts, certain Form 1099-DIV or Form 2439 amounts, or a long-term capital gain from a partnership interest where the partnership owned section 1250 property.
The workflow often starts on Form 4797, then moves through the section 1231 and section 1250 rules, and finally lands in the Schedule D tax worksheet. If the sale is reported on the installment method, IRS Schedule D instructions also connect the calculation to Form 6252 lines for installment-sale gain.
A taxpayer sells a depreciated rental building held for several years. The sale may create long-term gain after basis, depreciation, and Form 4797 reporting are considered. The taxpayer may then need the Schedule D Unrecaptured Section 1250 Gain Worksheet to determine how much of the long-term gain belongs in the special section 1250 rate bucket.
Unrecaptured section 1250 gain is not the same as the full gain on a real-estate sale. It is a specific portion of gain tied to section 1250 property and prior depreciation.
It is also not the same as Section 1250 Property. The property page explains the asset category; this page explains the gain category and rate-computation step.
It is also not the same as Section 1245 Property recapture. Section 1245 often creates ordinary income up to prior depreciation, while unrecaptured section 1250 gain is usually a special long-term capital-gain rate bucket.