What is the maximum tax rate applicable on gain from selling section 1250 real property?

The maximum tax rate applicable on gain from selling section 1250 real property is set at 25%. This rate specifically addresses the unrecaptured section 1250 gain, which arises when a taxpayer sells depreciated real property. Section 1250 property refers to real estate that has been improved, such as commercial buildings, and this tax rate is applicable primarily to the amount of gain attributable to depreciation that has been claimed on the property.

The rationale behind the higher rate of 25% compared to the usual capital gains tax rates is to recapture the benefits of depreciation that the taxpayer received during the period of ownership. When a taxpayer sells such property, the IRS wants to recapture some of that benefit, leading to the unrecaptured section 1250 gain being taxed at a maximum of 25%.

Understanding this aspect of real property taxation is important for accurate tax planning and compliance for individuals and businesses dealing with real estate transactions.