Depreciation recapture on residential rental

[AuditorTurnedGood]

Ok, I'm all confused. My client just got rid of his residential rental property. Depreciation was never claimed on the property (previous accountant missed that) so I know I need to deal with depreciation "allowed or allowable". However, I'm confused on this point:

Can Section 1231 property ALSO be section 1250 property? This seems to be the case, as section 1250 property is real property that is not and has never been section 1245 property.

Can someone check me on this? Thanks!

ATG

[abby]

yes, yes it can be both

HI ATG

sec 1250 deals with the TREATMENT of most sec 1231 depreciable real property sold at a gain. If the property is sold at a loss - it never 'enters' sec 1250. If the real property is MACRS - then sec 1250 is going to govern the treatment of any gain due to depreciation, as MACRS real property is never, to my knowledge, treated as sec 1245 property (some ACRS real property came under sec 1245 in the '80s)

I know you didn't ask about this - but you can usually do a catch up depreciation, too, using Form 3115.

Hope that helps

[solomon]

I know you didn't ask about this - but you can usually do a catch up depreciation, too, using Form 3115.

I believe Rev. Proc. 2007-16 addresses that.

[OtisMozzetti]

Some MACRS real property is treated as sec 1245

MACRS real property is never, to my knowledge, treated as sec 1245 property (some ACRS real property came under sec 1245 in the '80s)

Let's leave ACRS aside, in the past, for now. There are some examples of MACRS real property which is treated as sec 1245 property. The proverbial examples are the hog barns (single-purpose agricultural structures) and the oil storage tanks. See the asterisk under "Section 1245 Property" in TTB p. 6-13:

"Section 1245 property also includes certain other assets used as an integral part of manufacturing, production, or extraction; or of furnishing transportation, communications, electricity, gas water, or sewage disposal services. Also includes single purpose agricultural (livestock) or horticultural structures."

[abby]

you are of course, correct

I should have been more specific - residential rental property and commercial real estate are sec 1250 property under MACRS

[AuditorTurnedGood]

thank you all

that is very helpful! Once again, a great, well thought out response from the members. Thanks again!

ATG