Does Section 1245 Property Include Real Property?

Does Section 1245 Property Include Real Property?

Section 1245 property does include personal property.  Assets such as computers, desks, chairs, copiers, etc. are all personal property falling under Section 1245.  However, Internal Revenue Code Section 1245 does include real property assets.  Let’s have a look.

Section 1245 Property as Real Property

The property must be depreciable or amortizable in nature.  It can be personal or real, tangible or intangible.  

Although most real property is Section 1250 property, there are certain types of real property that qualify as Section 1245 property.  Section 1245 real property is:

  1. Tangible real property (except for buildings and their structural components) used as:
    • An integral part of the following activities: manufacturing, production, extraction or furnishing transportation, communications, electrical energy, gas, water or sewage disposal services,
    • A research facility used in any of the above activities, or
    • A facility used in any of the above activities for the bulk storage of fungible commodities (i.e., interchangeable goods).
  2. A single-purpose agricultural or horticultural structure.
  3. A storage facility (not including a building or its structural components) used in connection with the distribution of petroleum or any primary product of petroleum.
  4. Qualified timber property (i.e., a lot located in the U.S. containing trees in significant quantities and which is intended for planting, cultivating, caring for and cutting of trees for sale or use in the commercial production of timber products). (Section 194(c)(1))
  5. That part of any real property (other than property described in #1 above), which is subject to amortization or expensing under Sections 169, 179, 179A, 179B, 179C, 179D, 190, 193 or 194. Such property is only considered Section 1245 real property to the extent that amortization is claimed on it, rather than the property in its entirety.
  6. A railroad grading or tunnel bore (Section 168(e)(4)).

Cost Segregation Identifies Qualifying Section 1245 Property

When cost segregation is applied to a real property asset, commonly considered Section 1250 property, it reallocates qualifying building components into Section 1245, Section 1250 Land Improvements and Section 1250 Real Property.

 

Source: A Common Misconception About Section 1245 Property

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