In context
§1245 property includes all MACRS classes shorter than 27.5 or 39 years — 3-yr, 5-yr, 7-yr, 10-yr, 15-yr, and 20-yr. The 15-yr land improvements category is §1245 property by reference under §1245(a)(3)(D), even though land improvements are commonly thought of as “real estate.”
On disposition:
§1245 recapture = lesser of (gain on disposition) or (total depreciation taken)
The recapture amount is taxed as ordinary income at rates up to 37%.
This means the 100% bonus depreciation taken in year 1 on a 15-year land improvement is fully recaptured at ordinary income rates on disposition — not at the 25% unrecaptured §1250 gain rate.
The §1245 vs §1250 distinction is what gives cost segregation its disposition-side complexity: components reclassified into §1245 buckets generate ordinary recapture, while the residual §1250 building basis benefits from the 25% rate cap. Hold-period modeling and bracket-at-sale assumptions determine whether the net is positive.
See /recapture/ for the topic hub.