Unrecaptured Section 1250 Gain Definition

Unrecaptured Section 1250 Gain

Contents

What Is an Unrecaptured Section 1250 Gain?

Unrecaptured section 1250 gain is an Internal Revenue Service (IRS) tax provision where previously recognized depreciation is recaptured into income when a gain is realized on the sale of depreciable real estate property. Unrecaptured section 1250 gains are taxed at a maximum 25% tax rate, or less in some cases, as of 2019.   Unrecaptured section 1250 gains are calculated on a worksheet within Schedule D instructions, and they are reported on the Schedule D and carried through to the taxpayer’s 1040.  

Key Takeaways

  • An unrecaptured section 1250 gain is an income tax provision designed to recapture the portion of a gain related to previously used depreciation allowances.
  • It is only applicable to the sale of depreciable real estate.
  • Unrecaptured section 1250 gains are usually taxed at a 25% maximum rate.
  • Section 1250 gains can be offset by 1231 capital losses.

How Unrecaptured Section 1250 Gains Work

Section 1231 assets include all depreciable capital assets held by a taxpayer for longer than one year. Section 1231 is the umbrella for assets belonging to section 1245 and section 1250, and the latter is what determines the tax rate of depreciation recapture. Section 1250 relates only to real property, such as buildings and land. Personal property, such as machinery and equipment, is subject to depreciation recapture as ordinary income under section 1245.  

Unrecaptured section 1250 gains are only realized when there is a net Section 1231 gain. In essence, capital losses on all depreciable assets offset unrecaptured section 1250 gains on real estate. Therefore, a net capital loss overall reduces the unrecaptured section 1250 gain to zero.  

Unrecaptured section 1250 gains can be offset by capital losses

A section 1250 gain is recaptured upon the sale of depreciated real estate, just as with any other asset; the only difference is the rate at which it is taxed. The justification for the gain is to offset the benefit of previously used depreciation allowances. While the gains attributed to accumulated depreciation are taxed at the section 1250 recapture tax rate, any remaining gains are only subject to the long-term capital gains rate of 15%.  

Example of Unrecaptured Section 1250 Gains

If a property was initially purchased for $150,000, and the owner claims depreciation of $30,000, the adjusted cost basis for the property is considered to be $120,000. If the property is subsequently sold for $185,000, the owner has recognized an overall gain of $65,000 over the adjusted cost basis. Since the property has sold for more than the basis that had been adjusted for depreciation, the unrecaptured section 1250 gains are based on the difference between the adjusted cost basis and the original purchase price.

This makes the first $30,000 of the profit subject to the unrecaptured section 1250 gain, while the remaining $35,000 is taxed at the regular long-term capital gains. With that result, $30,000 would be subject to the higher capital gains tax rate of up to 25%. The remaining $35,000 would be taxed at the long-term capital gains rate of 15%.

Special Considerations

Since the unrecaptured section 1250 gains are considered a form of capital gains, they can be offset by capital losses. To do so, the capital losses must be reported through Form 8949 and Schedule D, and the value of the loss may vary depending on if it is determined to be short-term or long-term in nature.   For a capital loss to offset a capital gain, they must both be determined to be short-term or long-term. A short-term loss cannot offset a long-term gain and vice versa.

www.investopedia.com

Working With the Control Influence Accept Model

Giving Your Best When Problems Arise

Learn how to ride the waves of uncertainty with the Control Influence Accept model.

«You can’t stop the waves, but you can learn to surf.» – Jon Kabat-Zinn, Professor of Medicine Emeritus, University of Massachusetts.

Imagine the scene: you arrive at work to find that there’s been a sudden and substantial increase in the price of a key raw material that your company uses to make its best-selling product. Almost overnight, your business is facing considerable losses. How do you react?

You could immediately get to work on finding a solution. Do you pass the cost increase to your customer, in whole or in part? Is there a different raw material that could do the job? Do you try to negotiate a better price with your supplier, or find a cheaper source? Or, do you consider withdrawing the product and focusing on your other lines?

How you respond to problems determines how successful you will likely be in solving them. You won’t always be able to resolve a situation in the way that you’d like, but you need to take control when you can, and act decisively when you can’t.

In this article, we look at how you can maximize your personal impact in a difficult situation by using the Control Influence Accept (CIA) model.

What Is the Control Influence Accept Model?

Human relations specialist Neil Thompson and social work lecturer Sue Thompson discussed the CIA model in their 2008 book, The Critically Reflective Practitioner. It’s a versatile problem-solving and time- and stress-management tool that identifies three ways to respond to challenges:

  1. Control: identify the issues or elements of the situation that you control.
  2. Influence: identify the elements that you can’t control, but that you can influence.
  3. Accept: identify the things that you can neither control nor influence, and adapt accordingly.

When you understand these potential responses, you can put problems into perspective more easily and get a sense of what you can and can’t accomplish. This enables you to focus your efforts where they’ll have the most impact.

This is a useful approach when you’re dealing with issues from a personal perspective. And, as this article by self-development expert Roger Seip shows, applying the CIA model can help to reduce stress .

However, at Mind Tools, we think that managers need to do more than passively accept situations. After all, as a manager, you are paid to solve problems and achieve goals. Your superiors, and even your team members, would likely regard you as ineffective or negligent if you simply accepted a negative situation.

Remember, you’re a manager partly because of your ability to handle problems. And, in the volatile modern world , you need to be flexible, proactive and tenacious. Your organization has placed its trust in you to manage and control difficult situations, and to exert your influence for its greater good.

How to Use the CIA Model

Let’s look at how to use the elements of the CIA model in the workplace.

Control the Things That You Can Control

Changes, challenges and problems can arise at any time, whether you like it or not! So, it’s important to identify the things that you can control. Chances are, those things will be your attitude, behavior and emotions, and the decisions that you make in response to the problem.

An unexpected problem or challenge can spark emotions such as anger, anxiety and frustration. You can learn how to manage and control them with our article, Managing Your Emotions at Work .

Your team members will also be looking to you for clear and effective decision making. Our article, How to Make Decisions , explores a step-by-step approach to doing this. You may also need to give your team clear instructions and delegate tasks to them.

Influence What You Can Influence

Having a strong influence is the next best thing to having control. You can’t control your customers or your boss, for example, but you can influence the way that they think and act. And, although you won’t have full control over a group-run project, you will be able to affect its outcome.

There are many ways that you can extend your personal influence – even from a weak or minority position . For example, you can build your personal power base and develop expertise and charisma .

Also, you can boost your skills in areas such as stakeholder management and win-win negotiation – these are useful tools for working out what makes other people tick, and how you can influence them. Then, when a difficult situation arises, your opinion and advice will carry more weight, and the trust that others have in you could sway them to accept your ideas or solutions.

Finding This Article Useful?

You can learn another 46 problem-solving skills, like this, by joining the Mind Tools Club.

www.mindtools.com

Roth IRA Beneficiary Rules

Pay careful attention to these or you could pay a big penalty

If you’re the beneficiary of a Roth IRA, you may have several options—including opening an Inherited Roth IRA. But your relationship to the original owner and the age of the account determine which options you have.

Key Takeaways

  • It’s important to name a beneficiary so the money you saved goes where you intended, with the most tax benefits possible.
  • If you inherit a Roth IRA as a spouse—and you’re the sole beneficiary—you have the option to treat the account as your own.
  • Some beneficiaries have the option to stretch out the distributions over their lifetime, which can offer significant tax benefits.

Estate Planning with Roth IRAs

Roth IRAs are particularly valuable as estate-planning tools. With traditional IRAs, you have to begin taking required minimum distributions (RMDs) at age 70½. As you do so, you pay taxes on the money you take out.

With a Roth IRA, however, there are no RMDs during your lifetime. And all the distributions you do take in retirement are tax-free. That means you either have full use of all of it, with no tax hit—or you can leave your money in a Roth IRA to grow and pass along to your heirs.

Why Designate a Roth IRA Beneficiary?

A Roth IRA can be a fundamental part of your estate plan. But, none of its benefits can be used if you don’t complete your beneficiary designation.

Any Roth IRA assets that you haven’t withdrawn will be passed automatically to the beneficiaries you select. Often, the beneficiary is a surviving spouse or your children, but it could be another family member or friend.

When you open a Roth IRA, you fill out a form to name your beneficiary—the person(s) who will inherit your account after you die. This form is more important than many people realize. If you leave it blank, the account may not go to the person you intended, and some of the tax benefits could be lost.

To avoid problems, be sure you name a beneficiary—and keep it up-to-date following events like marriage, divorce, death, or the birth of a child.

If you’re a Roth IRA beneficiary, your options vary depending on whether you inherit it as a spouse or as a non-spouse. Here’s a rundown of the options for each situation.

Inheriting a Roth IRA as a Spouse

You have four options if you inherit a Roth IRA as a spouse:

Option 1: Spousal Transfer

With a spousal transfer, you treat the Roth IRA as your own. That means you’ll be subject to the same distribution rules as if it had been yours to begin with. To complete a spousal transfer, you’ll transfer the assets into your own new or existing Roth IRA.

  • You can withdraw contributions at any time.
  • Earnings are taxable until you reach age 59½ and it’s been at least five years since your spouse first contributed to the account (the «5-year rule»).
  • The option is only available if you’re the sole beneficiary.
  • You can designate your own beneficiary.

Option 2: Open an Inherited IRA, Life Expectancy Method

With this option, the assets are transferred into an Inherited Roth IRA in your name. You’ll have to take required minimum distributions. But you have the option to postpone them until the later of:

  • The date the original account holder would have turned age 70½, or
  • Dec. 31 of the year following the year of death (when the original account holder died).

Distributions are spread over your life expectancy. However, if there are other beneficiaries, distributions are based on the oldest beneficiary’s life expectancy— unless separate accounts are established before Dec. 31 of the year following the year of death.

  • You can withdraw contributions at any time.
  • Earnings are taxable unless the 5-year rule is met.
  • You won’t be subject to the 10% early withdrawal penalty.
  • Assets in the account can continue to grow tax-free.
  • You can designate your own beneficiary.

Option 3: Open an Inherited IRA, 5-Year Method

Under the 5-Year Method, the assets are transferred to an Inherited Roth IRA in your name. You can spread out the distributions, but you must withdraw all the assets from the account by Dec. 31 of the fifth year following the year of death.

  • You can withdraw contributions at any time.
  • Earnings are taxable unless the 5-year rule is met.
  • You won’t be subject to the 10% early withdrawal penalty.
  • Assets in the account can continue to grow tax-free for up to five years.
  • You can designate your own beneficiary.

Option 4: Lump-Sum Distribution

If you choose this option, all the assets in the Roth IRA are distributed to you. There’s no tax on contributions in the account. But the earnings are taxable if the account was less than five years old when the original account owner died.

The original account holder’s Roth IRA provider can help you understand your options, but they can’t give you advice or recommendations.

Inheriting a Roth IRA as a Non-Spouse

Non-spouses include children, grandchildren, other family members, and friends. You have three options if you inherit a Roth IRA as a non-spouse:

Option 1: Open an Inherited IRA, Life Expectancy Method

With the Life Expectancy option, the assets are transferred into an Inherited Roth IRA in your name. You’ll be subject to required minimum distributions that must begin by Dec. 31 of the year following the year of death.

Distributions are spread over your life expectancy if you’re the sole beneficiary. Otherwise, distributions are based on the oldest beneficiary’s life expectancy—unless separate accounts are established before Dec. 31 of the year following the year of death.

  • You can withdraw contributions at any time.
  • Earnings are taxable unless the 5-year rule is met.
  • You won’t be subject to the 10% early withdrawal penalty.
  • Assets in the account can continue to grow tax-free.
  • You can designate your own beneficiary.

Option 2: Open an Inherited IRA, 5-Year Method

With this option, the assets are transferred to an Inherited Roth IRA in your name. You can spread out your distributions over time, but you have to withdraw everything by Dec. 31 of the fifth year following the year of death.

  • You can withdraw contributions at any time.
  • Earnings are taxable unless the 5-year rule is met.
  • You won’t be subject to the 10% early withdrawal penalty.
  • Assets in the account can continue to grow tax-free for up to five years.
  • You can designate your own beneficiary.

Option 3: Lump-Sum Distribution

With a lump-sum distribution, the assets in the Roth IRA are distributed to you all at once. Contributions are tax-free, but earnings are taxable if the account was less than five years old when the original account owner died.

The Bottom Line

If you have a Roth IRA and don’t designate a beneficiary, it could get lumped into your total estate and divided according to the laws in your state. Your spouse or children may ultimately end up with your money, but they won’t have access to the same tax benefits as if you had named them as beneficiaries. And to make life easy for them (and you), open one as soon as you can to avoid 5-year-rule problems.

If you’re a Roth IRA beneficiary, you have several options. It’s important to consider your choices carefully since the tax consequences may vary. It’s helpful to consult with a trusted financial advisor who can help you determine your best option when you inherit a Roth IRA.

www.investopedia.com

Azure AD Connect user sign-in options

Azure Active Directory (Azure AD) Connect allows your users to sign in to both cloud and on-premises resources by using the same passwords. This article describes key concepts for each identity model to help you choose the identity that you want to use for signing in to Azure AD.

If you’re already familiar with the Azure AD identity model and want to learn more about a specific method, see the appropriate link:

It is important to remember that by configuring federation for Azure AD, you establish trust between your Azure AD tenant and your federated domains. With this trust federated domain users will have access to Azure AD cloud resources within the tenant.

Choosing the user sign-in method for your organization

The first decision of implementing Azure AD Connect is choosing which authentication method your users will use to sign in. It’s important to make sure you choose the right method that meets your organization’s security and advanced requirements. Authentication is critical, because it will validate user’s identities to access apps and data in the cloud. To choose the right authentication method, you need to consider the time, existing infrastructure, complexity, and cost of implementing your choice. These factors are different for every organization and might change over time.

Azure AD supports the following authentication methods:

  • Cloud Authentication — When you choose this authentication method Azure AD handles the authentication process for user’s sign-in. With cloud authentication you can choose from two options:
    • Password hash synchronization (PHS) — Password Hash Sync enables users to use the same username and password that they use on-premises without having to deploy any additional infrastructure besides Azure AD Connect.
    • Pass-through authentication (PTA) — This option is similar to password hash sync, but provides a simple password validation using on-premises software agents for organizations with strong security and compliance policies.
  • Federated authentication — When you choose this authentication method Azure AD will hand off the authentication process to a separate trusted authentication system, such as AD FS or a third-party federation system, to validate the user’s sign-in.

For most organizations that just want to enable user sign-in to Office 365, SaaS applications, and other Azure AD-based resources, we recommend the default password hash synchronization option.

Password hash synchronization

With password hash synchronization, hashes of user passwords are synchronized from on-premises Active Directory to Azure AD. When passwords are changed or reset on-premises, the new password hashes are synchronized to Azure AD immediately so that your users can always use the same password for cloud resources and on-premises resources. The passwords are never sent to Azure AD or stored in Azure AD in clear text. You can use password hash synchronization together with password write-back to enable self-service password reset in Azure AD.

In addition, you can enable Seamless SSO for users on domain-joined machines that are on the corporate network. With single sign-on, enabled users only need to enter a username to help them securely access cloud resources.

For more information, see the password hash synchronization article.

Pass-through authentication

With pass-through authentication, the user’s password is validated against the on-premises Active Directory controller. The password doesn’t need to be present in Azure AD in any form. This allows for on-premises policies, such as sign-in hour restrictions, to be evaluated during authentication to cloud services.

Pass-through authentication uses a simple agent on a Windows Server 2012 R2 domain-joined machine in the on-premises environment. This agent listens for password validation requests. It doesn’t require any inbound ports to be open to the Internet.

In addition, you can also enable single sign-on for users on domain-joined machines that are on the corporate network. With single sign-on, enabled users only need to enter a username to help them securely access cloud resources.

For more information, see:

Federation that uses a new or existing farm with AD FS in Windows Server 2012 R2

With federated sign-in, your users can sign in to Azure AD-based services with their on-premises passwords. While they’re on the corporate network, they don’t even have to enter their passwords. By using the federation option with AD FS, you can deploy a new or existing farm with AD FS in Windows Server 2012 R2. If you choose to specify an existing farm, Azure AD Connect configures the trust between your farm and Azure AD so that your users can sign in.

Deploy federation with AD FS in Windows Server 2012 R2

If you’re deploying a new farm, you need:

  • A Windows Server 2012 R2 server for the federation server.
  • A Windows Server 2012 R2 server for the Web Application Proxy.
  • A .pfx file with one TLS/SSL certificate for your intended federation service name. For example: fs.contoso.com.

If you’re deploying a new farm or using an existing farm, you need:

  • Local administrator credentials on your federation servers.
  • Local administrator credentials on any workgroup servers (not domain-joined) that you intend to deploy the Web Application Proxy role on.
  • The machine that you run the wizard on to be able to connect to any other machines that you want to install AD FS or Web Application Proxy on by using Windows Remote Management.

Federation with PingFederate

With federated sign-in, your users can sign in to Azure AD-based services with their on-premises passwords. While they’re on the corporate network, they don’t even have to enter their passwords.

For more information on configuring PingFederate for use with Azure Active Directory, see PingFederate Integration with Azure Active Directory and Office 365

For information on setting up Azure AD Connect using PingFederate, see Azure AD Connect custom installation

Sign in by using an earlier version of AD FS or a third-party solution

If you’ve already configured cloud sign-in by using an earlier version of AD FS (such as AD FS 2.0) or a third-party federation provider, you can choose to skip user sign-in configuration through Azure AD Connect. This will enable you to get the latest synchronization and other capabilities of Azure AD Connect while still using your existing solution for sign-in.

User sign-in and user principal name

Understanding user principal name

In Active Directory, the default user principal name (UPN) suffix is the DNS name of the domain where the user account was created. In most cases, this is the domain name that’s registered as the enterprise domain on the Internet. However, you can add more UPN suffixes by using Active Directory Domains and Trusts.

The UPN of the user has the format [email protected] For example, for an Active Directory domain named «contoso.com», a user named John might have the UPN «[email protected]». The UPN of the user is based on RFC 822. Although the UPN and email share the same format, the value of the UPN for a user might or might not be the same as the email address of the user.

User principal name in Azure AD

The Azure AD Connect wizard uses the userPrincipalName attribute or lets you specify the attribute (in a custom installation) to be used from on-premises as the user principal name in Azure AD. This is the value that is used for signing in to Azure AD. If the value of the userPrincipalName attribute doesn’t correspond to a verified domain in Azure AD, then Azure AD replaces it with a default .onmicrosoft.com value.

Every directory in Azure Active Directory comes with a built-in domain name, with the format contoso.onmicrosoft.com, that lets you get started using Azure or other Microsoft services. You can improve and simplify the sign-in experience by using custom domains. For information on custom domain names in Azure AD and how to verify a domain, see Add your custom domain name to Azure Active Directory.

Azure AD sign-in configuration

Azure AD sign-in configuration with Azure AD Connect

The Azure AD sign-in experience depends on whether Azure AD can match the user principal name suffix of a user that’s being synced to one of the custom domains that are verified in the Azure AD directory. Azure AD Connect provides help while you configure Azure AD sign-in settings, so that the user sign-in experience in the cloud is similar to the on-premises experience.

Azure AD Connect lists the UPN suffixes that are defined for the domains and tries to match them with a custom domain in Azure AD. Then it helps you with the appropriate action that needs to be taken. The Azure AD sign-in page lists the UPN suffixes that are defined for on-premises Active Directory and displays the corresponding status against each suffix. The status values can be one of the following:

State Description Action needed
Verified Azure AD Connect found a matching verified domain in Azure AD. All users for this domain can sign in by using their on-premises credentials. No action is needed.
Not verified Azure AD Connect found a matching custom domain in Azure AD, but it isn’t verified. The UPN suffix of the users of this domain will be changed to the default .onmicrosoft.com suffix after synchronization if the domain isn’t verified. Verify the custom domain in Azure AD.
Not added Azure AD Connect didn’t find a custom domain that corresponded to the UPN suffix. The UPN suffix of the users of this domain will be changed to the default .onmicrosoft.com suffix if the domain isn’t added and verified in Azure. Add and verify a custom domain that corresponds to the UPN suffix.

The Azure AD sign-in page lists the UPN suffixes that are defined for on-premises Active Directory and the corresponding custom domain in Azure AD with the current verification status. In a custom installation, you can now select the attribute for the user principal name on the Azure AD sign-in page.

You can click the refresh button to re-fetch the latest status of the custom domains from Azure AD.

Selecting the attribute for the user principal name in Azure AD

The attribute userPrincipalName is the attribute that users use when they sign in to Azure AD and Office 365. You should verify the domains (also known as UPN suffixes) that are used in Azure AD before the users are synchronized.

We strongly recommend that you keep the default attribute userPrincipalName. If this attribute is nonroutable and can’t be verified, then it’s possible to select another attribute (email, for example) as the attribute that holds the sign-in ID. This is known as the Alternate ID. The Alternate ID attribute value must follow the RFC 822 standard. You can use an Alternate ID with both password SSO and federation SSO as the sign-in solution.

Using an Alternate ID isn’t compatible with all Office 365 workloads. For more information, see Configuring Alternate Login ID.

Different custom domain states and their effect on the Azure sign-in experience

It’s very important to understand the relationship between the custom domain states in your Azure AD directory and the UPN suffixes that are defined on-premises. Let’s go through the different possible Azure sign-in experiences when you’re setting up synchronization by using Azure AD Connect.

For the following information, let’s assume that we’re concerned with the UPN suffix contoso.com, which is used in the on-premises directory as part of UPN—for example [email protected]

Express settings/Password hash synchronization
State Effect on user Azure sign-in experience
Not added In this case, no custom domain for contoso.com has been added in the Azure AD directory. Users who have UPN on-premises with the suffix @contoso.com won’t be able to use their on-premises UPN to sign in to Azure. They’ll instead have to use a new UPN that’s provided to them by Azure AD by adding the suffix for the default Azure AD directory. For example, if you’re syncing users to the Azure AD directory azurecontoso.onmicrosoft.com, then the on-premises user [email protected] will be given a UPN of [email protected]
Not verified In this case, we have a custom domain contoso.com that’s added in the Azure AD directory. However, it’s not yet verified. If you go ahead with syncing users without verifying the domain, then the users will be assigned a new UPN by Azure AD, just like in the «Not added» scenario.
Verified In this case, we have a custom domain contoso.com that’s already added and verified in Azure AD for the UPN suffix. Users will be able to use their on-premises user principal name, for example [email protected], to sign in to Azure after they’re synced to Azure AD.
AD FS federation

You can’t create a federation with the default .onmicrosoft.com domain in Azure AD or an unverified custom domain in Azure AD. When you’re running the Azure AD Connect wizard, if you select an unverified domain to create a federation with, then Azure AD Connect prompts you with the necessary records to be created where your DNS is hosted for the domain. For more information, see Verify the Azure AD domain selected for federation.

If you selected the user sign-in option Federation with AD FS, then you must have a custom domain to continue creating a federation in Azure AD. For our discussion, this means that we should have a custom domain contoso.com added in the Azure AD directory.

State Effect on the user Azure sign-in experience
Not added In this case, Azure AD Connect didn’t find a matching custom domain for the UPN suffix contoso.com in the Azure AD directory. You need to add a custom domain contoso.com if you need users to sign in by using AD FS with their on-premises UPN (like [email protected]).
Not verified In this case, Azure AD Connect prompts you with appropriate details on how you can verify your domain at a later stage.
Verified In this case, you can go ahead with the configuration without any further action.

Changing the user sign-in method

You can change the user sign-in method from federation, password hash synchronization, or pass-through authentication by using the tasks that are available in Azure AD Connect after the initial configuration of Azure AD Connect with the wizard. Run the Azure AD Connect wizard again, and you’ll see a list of tasks that you can perform. Select Change user sign-in from the list of tasks.

On the next page, you’re asked to provide the credentials for Azure AD.

On the User sign-in page, select the desired user sign-in.

If you’re only making a temporary switch to password hash synchronization, then select the Do not convert user accounts check box. Not checking the option will convert each user to federated, and it can take several hours.

docs.microsoft.com

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