Lynne owns depreciable residential rental real estate which has accumulated depreciation (all from straight-line) of $65,000. If Lynne sold the property, she would have a $53,000 gain. The initial characterization of the gain would be:

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Since the property is depreciable, the gain would first be characterized as Section 1245 gain (gain on the sale of depreciable personal property). However, since the property is residential rental real estate, the gain would then be subject to the rules of Section 1250, which generally treats depreciation as ordinary income but allows for some of the gain to be treated as long-term capital gain. Therefore, the initial characterization of the gain would be Section 1231 gain (gain on the sale of property used in a trade or business).

Lynne Owns Depreciable Residential Rental Real Estate Which Has Accumulated