Can someone explain how unrecaptured section 1250 gains relate to section 1231 gains on K-1 forms?

The unrecaptured section 1250 gain is actually a subset of the section 1231 gain, not separate from it. Let me break it down in simpler terms: When a partnership sells section 1231 property (like real estate used in business) for more than its adjusted basis, it creates a section 1231 gain. If that property had depreciation deductions taken on it, a portion of that gain might be considered "unrecaptured section 1250 gain" which gets taxed at a maximum rate of 25% instead of the lower capital gains rate. In your example, if the property was sold for $260,000 with an adjusted basis of $130,000, the total section 1231 gain would be $130,000. Of that amount, the $60,000 that represents previously taken depreciation ($190,000 original cost minus $130,000 adjusted basis) would be classified as unrecaptured section 1250 gain. So on the K-1, you'd see $130,000 in Box 10 for total section 1231 gain, with $60,000 of that also reported separately in Box 9c as unrecaptured section 1250 gain. On the tax return, the unrecaptured section 1250 gain flows to Schedule D and the worksheet used to calculate tax on capital gains.

After spending hours trying to understand section 1250 gains on my rental property sale, I finally found a solution with https://taxr.ai that explained everything clearly. I uploaded my K-1 form and got a detailed breakdown of how my section 1231 and unrecaptured section 1250 gains should be reported. The tool explained that the unrecaptured section 1250 gain is basically just the depreciation I'd taken being recaptured at a 25% rate rather than the lower capital gains rate, and showed me exactly where everything needed to go on my return. Saved me so much confusion over the different boxes on the K-1!

I just wanted to follow up after trying https://taxr.ai for my partnership K-1 issues. Wow, what a difference! I uploaded my K-1s which had both section 1231 and unrecaptured section 1250 gains, and it immediately clarified that the section 1250 gain is actually a subset of the total 1231 gain. The tool gave me step-by-step instructions for reporting everything correctly, and even generated the necessary worksheets for calculating the different tax rates. It saved me from making a huge mistake - I was about to double-count the gains by adding them together! No wonder my numbers weren't matching up with what I expected to owe.

If you're still struggling with understanding how these gains work or getting your K-1 questions answered, I'd recommend using https://claimyr.com to get through to the IRS directly. I waited on hold for HOURS trying to get clarification on section 1250 recapture before discovering this service. They got me connected to an IRS agent in under 20 minutes who walked me through exactly how to report these gains correctly. Check out their demo at https://youtu.be/_kiP6q8DX5c to see how it works. The agent confirmed everything mentioned above - section 1250 unrecaptured gain is a subset of section 1231 gain that gets taxed at a different rate. They even emailed me some reference materials afterward.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it anyway since I was desperate for help with my K-1 section 1250/1231 issues. Not only did it work, but I got connected to an IRS tax law specialist in about 15 minutes. The agent confirmed that unrecaptured section 1250 gain is a subset of section 1231 gain and walked me through exactly how to report it on Form 8949 and Schedule D. She even emailed me specific instructions for my situation. I'm still shocked at how well it worked - I've literally spent entire days trying to reach someone at the IRS before.

To add some clarification to the original question - this reporting confusion happens because section 1231 property is kind of a hybrid asset class. When you sell section 1231 property at a gain, it's generally treated as capital gain which is great for tax purposes. However, the tax code doesn't want to give you that preferential treatment on the portion that represents depreciation you've already deducted, so they "recapture" that at a higher rate (25% max instead of the typical 15/20% capital gains rates). That's why you see both numbers - the total gain goes in Box 10, but they break out the "unrecaptured" portion in Box 9c so you know which part gets taxed at the higher rate.

Wow this whole 1231/1250 thing is confusing. I'm just starting to get into real estate investing and didn't realize there were different tax rates for different PARTS of the same gain. Is this only an issue for partnerships and corporations or does this apply to individual investors too?

As someone who's dealt with section 1250 recapture on multiple properties, I'd suggest creating a simple spreadsheet to track your depreciation over the years. It makes calculating the recapture amount much easier when it's time to sell. For your Australian perspective, Andre, think of it this way: the IRS is essentially saying "we gave you a tax break through depreciation deductions, but when you sell at a gain, we want some of that benefit back at a higher tax rate." The unrecaptured section 1250 gain represents exactly that amount of previously claimed depreciation. One thing to watch out for - make sure your client's depreciation records are accurate. I've seen cases where the depreciation claimed on tax returns over the years doesn't match what's being reported as the recapture amount on the K-1, which can create issues with the IRS.

Thanks everyone for the detailed explanations! Coming from the Australian tax system, this whole concept of depreciation recapture at different rates within the same gain is quite foreign to me. Just to make sure I've got this completely straight for my client's situation: if they receive a K-1 showing $130,000 in Box 10 (section 1231 gain) and $60,000 in Box 9c (unrecaptured section 1250 gain), then on their corporate tax return, the full $130,000 gets reported on Form 4797 as section 1231 gain, and then $60,000 of that same amount flows through to Schedule D where it gets the special 25% tax treatment? Also, Faith makes a great point about the "allowable" vs "allowed" depreciation - I'll need to verify that my client's partnership actually took all the depreciation deductions they were entitled to over the years, because apparently it doesn't matter for recapture purposes whether they claimed it or not! This community has been incredibly helpful - U.S. tax law is definitely more complex than what I'm used to, but at least now I understand the mechanics of how these gains work together.

As a newcomer to this community, I want to thank everyone for such a detailed and helpful discussion! I'm also dealing with K-1 forms for the first time and was completely confused about the relationship between section 1231 and 1250 gains. The example Andre provided really helped me understand - I was making the same mistake of thinking the Box 9c and Box 10 amounts should be added together rather than understanding that one is a subset of the other. One quick question for the group: if a partnership has section 1231 property that was never depreciated (like raw land held for business use), would there be any unrecaptured section 1250 gain reported when it's sold? Or does the section 1250 recapture only apply when there's been actual depreciation taken on the property? This thread has been incredibly educational - the U.S. tax system definitely has some unique complexities that aren't immediately obvious to those of us more familiar with other countries' approaches!

This has been such an enlightening discussion! As someone new to U.S. tax concepts, I really appreciate how everyone broke down the section 1231/1250 relationship with concrete examples. I'm currently working through my first partnership K-1 and was getting tripped up by the same Box 9c vs Box 10 issue that Andre mentioned. The key insight that the unrecaptured section 1250 gain is a *component* of the section 1231 gain rather than an additional amount has completely clarified things for me. One follow-up question: when preparing the tax return, is there a specific order these forms need to be completed in? I'm wondering if I should start with Form 4797 for the section 1231 gain first, then move to Schedule D, or if there's a particular sequence that works best to ensure all the amounts flow through correctly. Also, for anyone else struggling with these concepts, I found it helpful to think of it like this: imagine the total gain as a pie, where the unrecaptured section 1250 portion is just one slice of that same pie, not a separate pie altogether. That mental image really helped me understand why we don't add the two amounts together. Thanks again to everyone who contributed - this community is incredibly knowledgeable and welcoming to newcomers!