C corporations beware! Sec. 291(a) (1).

• Author: Dickey, Carolyn
• Position: Brief Article

Sec. 291 modifies Sec. 1250 for corporate dispositions of depreciable real estate sold at a gain after Dec. 31, 1982. Under Sec. 291(a)(1), corporations that dispose of Sec. 1250 property are required to report an additional portion of the gain as ordinary income; this provision applies only to C corporations.

A corporation that disposes of real property at a gain must recognize as ordinary income, in addition to the Sec. 1250 recapture, a percentage of the following: the excess (if any) of the amount that would be treated as ordinary income (if such property was Sec. 1245 property) over the amount treated as ordinary income under Sec. 1250. The additional percentage to be recaptured is 20%.

Example: XYZ Corporation sold a warehouse held for five years for $500,000. The building cost $250,000. Accumulated depreciation on the building through the date of sale was $50,000; straight-line depreciation would have been $40,000. The gain was $300,000 ($500,000 - ($250,000 - $50,000)); Sec. 1250 recapture was $10,000 ($50,000 - $40,000). The gain would be recognized as follows:

$50,000 ordinary income, if...