Unrecaptured Section 1250 Gain Tax Rate of 25%

If you sell depreciable real estate like rental property, you have to pay tax on any gain applicable to depreciation at a rate of 25% for the federal tax return. Any capital gains on appreciation above the original cost would be taxed at a maximum rate of 20%. For example, if you sold a rental property for $50,000 that you bought for $10,000 ten years ago and that you had deducted $3,000 in depreciation up to the date of the sale, then the unrecaptured section 1250 gain of $3,000 would be taxed at 25% and the remaining gain of $40,000 would be taxed at a maximum rate of 20%. The total gain is $43,000 which is the proceeds of $50,000 minus the adjusted basis of $7,000($10,000-$3,000).