Glossary

Section 1245 Property

Depreciable personal property and certain land improvements — the category into which cost segregation reclassifies building components — subject to full depreciation recapture at ordinary income tax rates upon sale.

The Section 1245 label covers tangible personal property (carpeting, certain fixtures, specialty equipment) and, for cost segregation purposes, qualifying land improvements like paving, fencing, and site lighting, all of which carry shorter MACRS recovery periods (5, 7, or 15 years) than the building shell. Because all depreciation claimed on 1245 property is recaptured as ordinary income on sale, with no benefit from the lower capital gains or unrecaptured Section 1250 rates, investors should model the recapture liability alongside the upfront tax shield rather than treating cost segregation as a pure win; the strategy's value depends on the taxpayer's expected holding period, future tax bracket, and whether a 1031 exchange will defer the recapture at exit.