What is termed for any part of the net capital gain from selling section 1250 real property due to depreciation?

The term used for any portion of the net capital gain from selling section 1250 real property that is attributed to prior depreciation is known as unrecaptured section 1250 gain. This designation applies specifically to certain types of real property that have undergone depreciation under section 1250 of the Internal Revenue Code.

When a taxpayer sells such property, any gain realized from the sale must be examined to determine how much, if any, of that gain is subject to special tax rates. Unrecaptured section 1250 gain is taxed at a maximum rate of 25%, which is different from the rates generally applied to long-term capital gains, which can reach up to 15% or 20%, depending on the taxpayer's income level.

Understanding this term is crucial for tax preparation because failure to correctly identify and report unrecaptured section 1250 gain can lead to a miscalculation of tax liabilities. This specific classification helps ensure that the appropriate tax rate is applied to the gain derived from depreciation, which is distinct from other classifications of capital gains or losses.