The short answer
Section 1250 property is real property that is or has been subject to depreciation and is not section 1245 property, which in practice means buildings, their structural components and depreciable leaseholds, as defined in section 1250(c). On a sale, only "additional depreciation", the amount taken above straight line, is recaptured as ordinary income. Straight-line depreciation is taxed instead as unrecaptured section 1250 gain at up to 25%.
At a glance
| What it covers | Depreciable real property that is not section 1245 property |
|---|---|
| Land | Not included, because land is not depreciable |
| Ordinary income | Only additional depreciation beyond straight line, for property held more than one year |
| Post-1986 buildings | Straight line, so usually no additional depreciation |
Section 1250 defines the property and limits ordinary-income recapture to additional depreciation.
Section 1250(c) defines section 1250 property as any real property, other than section 1245 property, that is or has been subject to the depreciation allowance in section 167. Publication 544 adds that it includes a leasehold of land or of section 1250 property, and that a fee simple interest in land is excluded because it is not depreciable.
Section 1250(b)(1) defines additional depreciation as depreciation adjustments that exceed what straight line would have produced for property held more than one year; for property held one year or less, all depreciation counts. For most property the applicable percentage is 100%, and Publication 544 says residential rental and nonresidential real property placed in service after 1986 and held over a year has no additional depreciation, because MACRS uses straight line for it.
Worked example: a straight-line building versus a bonus-depreciated improvement.
Hypothetical: an office building placed in service in 2015 has taken $300,000 of straight-line depreciation. Selling it at a gain produces no section 1250 ordinary income. The $300,000 is unrecaptured section 1250 gain, taxed at up to 25%.
Now suppose the owner also placed $200,000 of qualified improvement property, which Publication 946 lists as 15-year property, in service three years before the sale and deducted it in full with the special depreciation allowance. Straight line over 15 years would have allowed roughly $40,000, so about $160,000 is additional depreciation. Publication 544 conditions the no-additional-depreciation result on electing out of the special allowance, so that $160,000 can be ordinary income if the gain is large enough. Run your own numbers with your CPA.
The Form 4797 instructions use Part III to figure that ordinary-income recapture, property by property, and require a sale of a building and land together to be allocated between them by fair market value.
Where it bites: improvements, exchanges into land and depreciation history.
In an exchange, section 1250(d)(4) limits recapture to the greater of the gain recognized or the excess of the section 1250 gain over the fair market value of section 1250 property received. An exchange of a building with additional depreciation for raw land, which is not section 1250 property, can therefore trigger ordinary income even with no cash boot.
Additional depreciation also follows carryover basis: Publication 544 counts depreciation allowed to a donor in figuring a donee's recapture. For the 2026 rate picture, see the depreciation recapture tax rate; for equipment and cost segregation items, see section 1245 property; and for land in an exchange, rental house into commercial, land or a DST.
Related questions
Is a building ever section 1245 property?
Publication 544 says that if section 1250 property becomes section 1245 property through a change in use, it can never again be treated as section 1250 property. Buildings and structural components otherwise stay section 1250 property.
Does residential property get a lower recapture percentage?
For residential rental property, Publication 544 gives an applicable percentage of 100% for periods after 1975, so the practical result matches nonresidential property for modern buildings. Special percentages apply to certain low-income housing.
Where is section 1250 gain reported?
Dispositions of business and rental property are reported on Form 4797, where Part III computes the section 1250 ordinary income before the rest of the gain moves to Part I.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.