Section 1245 is a tax law codified in the Internal Revenue Code (IRC) that taxes gains on the sale of section 1245 property at ordinary income rates. Section 1245 recaptures depreciation or amortization allowed or allowable on tangible and intangible personal property at the time a business sells such property at a gain. Section 1245 taxes the gain at ordinary income rates to the extent of its allowable or allowed depreciation or amortization. The IRS defines Section 1245 property as any property that is or has been subject to an allowance for depreciation or amortization and that is any of the following types of property:

• Personal property (either tangible or intangible).
• Other tangible property (except buildings and their structural components) used as any of the following:
  • An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services.

Section 1245 property is often compared with 1250 property. Section 1250 Property is generally described as “real property,” and it has further been defined as “all depreciable property that is not 1245 property” . In general, deprecation claimed on section 1245 property is recaptured as ordinary income to the extent of gain realized on the property.