 Hello and welcome to the session in which we will discuss section 1250, unrecapture gain on real state. Now, section 1250 assets, which is real estate assets, are subset of section 1231 assets. Now, what are section 1231 assets? 1231 assets are business assets, and we held them more than one year. And under section 1231, we break them down into two categories, section 1245, which are depreciable personal property used in a business and held for more than a year, like a computer, a laptop, a vehicle, a truck, furniture, desks, chair, office, basically office equipment. Those are section 1245, which are movable versus section 1250 assets, which are real property and land. Real property is depreciable, land is not depreciable. Simply put, section 1250 assets are not movable. A warehouse is attached to the land. A land is land. A building is a building. You cannot move them around unmovable. Now, the concept that we need to learn about in this section 1250 unrecapture gain is similar to the concept of section 1245. Now, I don't want you to make section 1250 unrecaptured gain with section 1250 recapture depreciation. This is a little bit different. Section 1250 asset depreciation recapture for individuals applied to depreciable real property that are residential real estate acquired before 1987 and non-residential real estate acquired before 1981. What's special about these states? During that time, the depreciation method used was accelerated method. What do we use now for real estate? We use the straight line. So, what happened is when you sell those assets, you would have to take the difference between the accelerated method and the straight line and the difference between them will be considered ordinary income part of the game. We don't have to worry about this. This is not what we're going to be discussing, but I have to discuss this because the naming is very similar or confusing 1250 recapture depreciation versus section 1250 unrecaptured gain. So, this is the section 1250 depreciation recapture, which is the difference between the additional depreciation, which is the access of accelerated over straight line and the recognized game. That's not what we are discussing. Before we proceed any further, I have a public announcement about my company farhatlectures.com. Farhat accounting lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. Well, we are discussing the section 1250 unrecaptured gain. Again, think of section 1250 asset. So, when a real property is sold at a gain, a part of that gain that would otherwise qualify for 0.15 and 20 is subject to 25. So, the IRS is and the government is not, you know, they're not very nice about capital gains when it comes to those property. They want to get more than 20%. They want to charge you 25%. And this is known as unrecaptured section 1250. Now, some of the gain could be treated as section 1231, which we'll see under what circumstances. So, to compute the unrecaptured section 1250 gain, we have to compute the gain recognized and compare the gain recognized to the accumulated depreciation taken on the asset. Wow, this sounds like 1245. Indeed, it's basically like 1245. So, gain recognized versus accumulated depreciation taking. The best way to illustrate this is to look at an example. We have a business person acquired a retail building for 450. So, that's the cost of the building cost 450. During year X1, the building was sold in year seven for 380. So, we held it more than a year. We applied the straight line depreciation, therefore, we don't have to have any section 1250 depreciation recaptured that subject to ordinary income, which accumulated depreciation amounted to 135. So, we have the cost of the building. We have accumulated depreciation. Now, we can find the adjusted basis. And if my math is right, this should be, that's not, for some reason, when I'm doing this, I don't do the math correctly. So, the adjusted basis is 315 for this building, adjusted basis. Now, we sold this asset, this building for 380. So, if we sold it for 380 minus 315 adjusted basis, that's going to give us a realized gain of 65. Now, what we do is we compare the realized gain to the accumulated depreciation taking and the lower of those two is subject to what? Subject to 25% tax. Therefore, the gain is subject to 25% tax. So, the adjusted basis of the building is 315. The gain is 450 minus 315 equal to 65, which is lesser than the accumulated depreciation. And this amount is subject to 25% tax, the 65,000, which is section 1250 unrecaptured gain. Now, what would happen if we sold this building for more than 450? Now, what is the special about 450? That's the cost. If we sold it more than 450, that additional cost, that additional amount above 450, which is a gain, that's not subject to this 25%. It's subject to 015 and 20%. So, if we sold the building for half a million, then we have an additional $50,000 in gains that's subject to 015 and 20%. Actually, we really have to do the computation specifically, but that $50,000 that's above the original cost is subject to 015, 20%, depending on the taxpayer status, whether you qualify for 015 or 20%. What should you do now? As a CPA candidate, as an enrolled agent, as an accounting students, please go to FAHAT lectures and look at additional resources, multiple choice, true, false, exercises, additional lectures. That's going to help you prepare for the CPA exam. That's going to help you prepare for the enrolled agent exam. That's going to help you prepare for your accounting course. Good luck, study hard, and of course, stay safe.