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Schedule K1 (1065)

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📚 Key Information: Unrecaptured Section 1250 Gain

Use this when you need to understand how gains from Section 1250 property are treated and reported.

According to IRS Publication 544 - Sales and Other Dispositions of Assets, Chapter 3 - Section 1250 Property:

 

Assets depreciated as code section 1250 property use the straight-line depreciation method. Resulting gain is not immediately recaptured at ordinary rates like gains on 1245 property (there is no tax item called section 1250 recapture). Instead, any gain from the disposition of 1250 property results in a tax item called unrecaptured 1250 gain (calculated on Form 4797 Part III). This is a flow-through item reported separately on the shareholder's K1. If net 1231 gain is reported on the individual's Schedule D, the gain will be taxed at a 25% rate to the extent that there is unrecaptured 1250 gain.

 

📊 Where It Is Reported on Schedule K-1 (1065)

Use this when you need to know how line 9c is handled and what types of unrecaptured Section 1250 gain exist.

According to IRS Partner's Instructions for Schedule K-1 (1065), line 9c - Unrecaptured Section 1250 Gain:

 

There are three types of unrecaptured section 1250 gain. Report your share of this unrecaptured gain on the Unrecaptured Section 1250 Gain Worksheet - Line 19 in the Instructions for Schedule D (Form 1040) as follows.

 

Step 1: Report unrecaptured Section 1250 gain from the partnership’s business assets

Use this when the gain comes from the sale or exchange of the partnership's business assets.

Report unrecaptured section 1250 gain from the sale or exchange of the partnership's business assets on line 5.

 

Step 2: Report unrecaptured Section 1250 gain from an interest in a partnership

Use this when the gain comes from the sale or exchange of an interest in a partnership.

Report unrecaptured section 1250 gain from the sale or exchange of an interest in a partnership on line 10.

 

Step 3: Report unrecaptured Section 1250 gain from certain entities or investments

Use this when the gain comes from an estate, trust, RIC, or REIT.

Report unrecaptured section 1250 gain from an estate, trust, regulated investment company (RIC), or real estate investment trust (REIT) on line 11.

 

📝 How Box 9c Is Displayed

Use this when you need to interpret what the partnership reports in box 9c.

If the partnership reports only unrecaptured section 1250 gain from the sale or exchange of its business assets, it will enter a dollar amount in box 9c. If it reports the other two types of unrecaptured gain, it will provide an attached statement that shows the amount for each type of unrecaptured section 1250 gain.

 

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