Worked example
Selling a rental with a cost-segregated equipment asset and land
An investor sells a rental property held more than one year in a taxable cash sale. The net proceeds are allocated across a straight-line building, one Section 1245 equipment asset from a cost segregation study, and land. Illustrative rates are 32% ordinary, 25% unrecaptured Section 1250 and 15% remaining gain.
Inputs
| Building (Section 1250, straight line) | $600,000 proceeds, $450,000 basis, $120,000 depreciation |
|---|---|
| Equipment (Section 1245) | $60,000 proceeds, $80,000 basis, $70,000 depreciation |
| Land | $200,000 proceeds, $150,000 basis |
| Illustrative rates | 32% / 25% / 15% |
Calculator output
| Total sale gain | $370,000 |
|---|---|
| Section 1245 ordinary recapture | $50,000 |
| Unrecaptured Section 1250 gain | $120,000 |
| Remaining gain before Section 1231 netting | $200,000 |
| Selected-rate illustration, not total tax | $76,000 |
Building gain is $600,000 minus $330,000 adjusted basis, or $270,000: $120,000 is unrecaptured Section 1250 gain (the depreciation taken) and $150,000 is remaining gain. Equipment gain is $60,000 minus $10,000, or $50,000, all ordinary recapture because it does not exceed the $70,000 of depreciation. Land adds $50,000 of remaining gain. The illustration is $50,000 x 32% plus $120,000 x 25% plus $200,000 x 15%.