LOTS OF CONFUSION ON THIS SUBJECT!
Hope this helps you guys:
Section 1245 property is depreciable personal property (i.e., machinery, equipment, furniture, fixtures and section 197 intangibles ). Section 1245 only applies if a GAIN is realized on the disposal of depreciable personal property. Under Section 1245 rules, depreciation allowed or allowable through the date of disposal must be recaptured as ordinary income to the extent the depreciation is equal to or less than the gain.
The portion of the gain on the disposal of section 1245 property that EXCEEDS recaptured depreciation is a Section 1231 gain PROVIDED the property was held MORE THAN ONE YEAR on the date of disposal. Recaptured depreciation is NOT taken into account as Section 1231 gain.
If depreciable personal property is held only one year or less on the date of disposal, the entire gain or loss is ordinary gain or ordinary loss and the property is not referred to as section 1231 property since section 1231 tax treatment would not apply.
Certain property, such as inventory held for sale to customers or inventory consumed in the business (i.e, office supplies), are never eligible for section 1231 tax treatment.
Section 1250 property is depreciable real property. For NONRESIDENTIAL property placed in service PRIOR to 1987, the amount of depreciation taken that is equal to or less than the gain is recaptured as ordinary income. The portion of the gain that EXCEEDS recaptured depreciation is a section 1231 gain. In other words, PRE-1987 nonresidential property gets the same treatment for depreciation recapture as Section 1245 property.
For PRE-1987 RESIDENTIAL property, ADDITIONAL (EXCESS) depreciation must be recaptured as ordinary income. Additional depreciation is the EXCESS of accelerated depreciation over straight-line depreciation. If straight-line depreciation was used for residential property, then there is no depreciation recapture requirement since there would be no ADDITIONAL (EXCESS) depreciation.
For depreciable real property placed in service AFTER 1986 there is NO depreciation recapture requirement because only straight-line MACRS depreciation is permitted. A gain on POST-1986 depreciable real property is subject to section 1231 netting rules. If a net section 1231 gain results, the gain attributable to depreciation is subject to tax of up to 25% on the Unrecaptured Section 1250 gain (the gain attributable to depreciation which was not required to be recaptured as ordinary income). This tax will be lower than 25% if the taxpayer's tax bracket is less than 25%.
Section 1245 property is also Section 1231 property PROVIDED the property was held MORE THAN ONE YEAR on the date of disposal. Section 1231 deals with the TAX TREATMENT of gains and losses of the disposal of Section 1245 property, Section 1250 property, amortizable Section 197 intangibles, and land PROVIDED the holding period of MORE THAN ONE YEAR is met for each of these types of property.
Section 1245 and Section 1250 deal with depreciation recapture rules; Section 1231 does NOT.
If Section 1245 propety and Section 1250 property is held one year or less, this property is not referred to as Section 1231 property because Section 1231 tax treatment would not apply.
Section 1245 property is personal property that has been or is subject to an allowance for depreciation. Section 1250 property is real property subject to an allowance for depreciation.
The term PERSONAL property is a legal one. It means the property is MOVEABLE as opposed to real property, such as land and anything affixed to the land such as a building and trees.