Section 1245 versus 1250: the distinction that drives every classification

The two categories

Section 1245 property is depreciable tangible personal property. It recovers over 5 or 7 years, is bonus eligible, and recaptures as ordinary income on disposition.

Section 1250 property is real property and its structural components. It recovers over 15, 27.5 or 39 years depending on what it is, and produces unrecaptured section 1250 gain capped at 25% on disposition.

Land improvements are section 1250 property that happens to carry a 15-year life and bonus eligibility — the useful middle.

The tests

The framework comes from the old investment tax credit regulations and the case law interpreting them. The questions an engineer asks about each component:

• Is it movable, and can it be moved without damage to it or to the building?
• How permanently is it attached — bolted, welded, embedded, or simply set in place?
• Was it designed to be moved, or designed to remain?
• Does it relate to the operation of the building, or to a business function carried on inside the building?
• How much damage would removal cause, and how much would reinstallation cost?

Where it gets genuinely hard

Electrical systems. A panel serving general building lighting and receptacles is a structural component. A panel dedicated to production equipment or refrigeration racks serves the operation, not the building.

Plumbing. Restroom rough-in is structural. A dedicated line to a dental operatory or a floor sink serving a kitchen is not.

HVAC. Comfort conditioning is structural. Dedicated process cooling or exhaust serving specific equipment is not.

These are the decisions that separate an engineering study from a spreadsheet, and each one has to be documented with reasoning rather than asserted.

The Hospital Corporation framework

The 1997 Tax Court decision confirmed that property qualifying as tangible personal property under the investment tax credit rules retains that character for depreciation purposes. That is the doctrinal foundation on which every modern study rests, and it is why the classification questions still trace back to regulations written for a credit that no longer exists.