Section 1245 and Section 1250 Recapture Clause Samples

The Section 1245 and Section 1250 Recapture clause defines how gains from the sale of certain depreciable property are treated for tax purposes. Specifically, it requires that a portion of the gain attributable to prior depreciation deductions on tangible personal property (Section 1245) or real property (Section 1250) be taxed as ordinary income rather than at more favorable capital gains rates. For example, if a business sells equipment or a building that has been depreciated, the IRS may 'recapture' some of the tax benefits previously received. This clause ensures that taxpayers cannot avoid ordinary income tax rates on the depreciation portion of their gains, thereby preventing abuse of depreciation deductions and maintaining tax equity.