6252 unrecaptured section 1250 gain smart worksheet

[Young-TP]

On the "unrecaptured section 1250 gain smart worksheet" for form 6252, "E" says 1250 drepreciation carryover to the next year. Why is this and will that entire amount total be taxed as a gain in the next year. I have not done an installment return before, so just want to understand all the numbers.

[TaxGuyBill]

Unrecaptured Section 1250 is the gain due to due depreciation, which is taxed at regular tax rates up to 25%.

For an Installment Sale, the taxable amount for the principal FIRST takes the Unrecaptured Section 1250 Gain, before any long-term capital gains.

For example:

Let's say some real estate was bought at $100,000, sold at $120,000 and took $5,000 of depreciation.  Out of the total gain of $25,000, the $5000 is Unrecaptured Section 1250 Gain.

First year of the Installment Sale received $2000 of taxable principal payments.  That $2000 is Unrecaptured Section 1250 Gain, taxed at regular rates up to 25%.  The other $3000 is carried to next year.

Second year of Installment Sale received $4000 of taxable principal payments.  The first $3000 is Unrecaptured Section 1250, the last $1000 is long-term capital gain.

Subsequent years of Installment Sale.  All taxable portion of principal payments will be long term capital gain because the Unrecaptured Section 1250 Gain already been used/taxed.

Does that help?

[Young-TP]

Thank you for your explanation. This is my situation:

Bought/set up rental $141,000 ($10,000 land included) sold at $555,000. Took $131,000 depreciation. I show on the form 6252 unrecaptured section 1250 gain smart worksheet:

B 131,000

C   46,274 

E    84,726

I know C and E = 131,000, just don't know how those numbers were arrived at. I'm feeling pretty thick minded. Line F is $493,439, G is $27,787, H is 94.6689

Received total payments of $52,047, installment sale of $48,880, interest $5,116.

On form 4797 page 2, line 30, the total gain is $493,439.

Maybe it isn't necessary for me to understand how the "calculated fields" are figured as it says for C, but I'm just curious.

I really appreciate your time and explanation. I do understand unrecaptured section 1250 gain reasons.

Thanks 

[TaxGuyBill · Accepted solution]

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@Young-TP wrote:

B 131,000

C   46,274 

E    84,726

I know C and E = 131,000, just don't know how those numbers were arrived at. I'm feeling pretty thick minded. Line F is $493,439, G is $27,787, H is 94.6689

Received total payments of $52,047, installment sale of $48,880, interest $5,116.

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Based on the other numbers you entered into the program, 94.6689% of the payments for principal are taxable (the principal payments are allocated between non-taxable based on the remaining Basis, and taxable based on the taxable gain).

Total principal payments of $48,880 multiplied by 94.6689% means that $46,274 of the payments are taxable. 

As I mentioned in my first response, the Unrecaptured Section 1250 Gain comes first, so the taxable amount of $46,274 is taxed as Unrecaptured Section 1250.  Out of a total amount of $131,000 (the amount of depreciation), that takes $46,274 this year and carries over $84,726 to future years.

Does that help?

[Young-TP]

OMG, thank you so much! I believe I understand. I hate just taking the figures as gospel, even though I know they are correct, without understanding how they were arrived at.

Thank you so much for your explanation.  You are greatly appreciated.