K-1 Box 10 Section 1231 Gain in the Year a Syndication Sells
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When a syndication sells its building, your K-1 for that year can show a net Section 1231 gain in Box 10. Section 1231 covers property used in a business or held for rental for more than a year. If your Section 1231 gains for the year exceed your Section 1231 losses, the net gain is generally treated as long-term capital gain. Two pieces are taxed differently: depreciation on the building (unrecaptured Section 1250 gain, taxed up to 25%) and, if you had net 1231 losses in the past five years, an equal amount of the gain that is recast as ordinary income.
This post is about the sale-year K-1. For the recapture rules themselves, see depreciation recapture when a syndication sells. General information as of October 2026, not tax advice; ask your own tax adviser.
What is Section 1231 gain?
Section 1231 treats gain from selling business or rental property held more than a year, such as an apartment building, in a favorable way: net gains are long-term capital gains, but net losses are ordinary losses. A partnership reports your share of its Section 1231 gain or loss on the K-1, in Box 10. You then combine it with any Section 1231 items from your own other property.
Why does the K-1 show Box 9c and Box 10 together?
The building's gain is split. The part equal to depreciation previously taken on real property is unrecaptured Section 1250 gain, reported in Box 9c and taxed at up to 25%. The remainder is Section 1231 gain. The partnership's K-1 and its attached statement tell you how the pieces add up; they are components of one sale. The Partner's Instructions for Schedule K-1 explain each box.
How does the five-year lookback work?
If you had net Section 1231 losses in any of the previous five tax years that you have not already recaptured, IRC 1231(c) recharacterizes an equal amount of this year's net Section 1231 gain as ordinary income. This usually matters to investors who had Section 1231 losses from earlier deals, not to those whose only history is passive rental losses on Box 2. Your preparer tracks it from your prior-year Form 4797.
Where is it reported?
Section 1231 gain flows through Form 4797, which then feeds Schedule D or ordinary income as needed. A passive-loss carryover can also be released in the sale year; see passive loss carryover. Your preparer works from the K-1 and the attached statements.
Worked example (illustrative)
An investor owns 1% of a deal. The building sells for a gain of $4,000,000 over its tax basis, of which $2,500,000 is depreciation previously claimed on the building. The investor's 1% share is $40,000 of gain: $25,000 unrecaptured Section 1250 gain (Box 9c), taxed up to 25%, and $15,000 of Section 1231 gain (Box 10), taxed as long-term gain if the year's 1231 items net to a gain. If the investor had a $10,000 net 1231 loss in an earlier year that has not been recaptured, $10,000 of the $15,000 becomes ordinary income. Numbers are hypothetical and ignore equipment recapture, the waterfall and state tax.
Common questions about the sale-year K-1
- Where is my cash? In Box 19, not Box 10. The gain is a tax figure; see K-1 Box 2 vs distributions.
- Why is my taxable gain larger than my profit? Prior depreciation and a negative capital account raise gain. See capital account.
- Can I defer it? Not by your own 1031 exchange; the partnership, not the investor, exchanges. Alternatives exist, so ask your adviser.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings from their friends and followers under Rule 506(b) or 506(c), with verified accredited investors only. The $5,000 yearly administration fee covers delivering each investor's K-1 through DoorRaise; the K-1 itself is prepared by the deal's accountant. DoorRaise gives no tax advice. Fees: $1,500 to set up (non-refundable), then $5,000 a year from closing (only if the deal closes). See pricing.
FAQ
What is Box 10 on a syndication K-1?
Your share of net Section 1231 gain or loss, usually from the sale of the building or other business property held more than a year.
Is Section 1231 gain taxed as capital gain?
A net Section 1231 gain generally is, after the five-year lookback. Net losses are ordinary.
What is the difference between Box 9c and Box 10?
Box 9c is the part of the gain equal to prior real property depreciation, taxed up to 25%. Box 10 is the Section 1231 gain.
Is depreciation on equipment taxed differently?
Yes. Depreciation on personal property is generally recaptured as ordinary income under Section 1245.
Where do I report Box 10?
On Form 4797, which flows to Schedule D or ordinary income as needed. Your preparer handles it.
Sources
- 26 U.S.C. 1231: Property used in the trade or business
- IRS: Partner's Instructions for Schedule K-1 (Form 1065)
- IRS: Instructions for Form 4797
- IRS: Net investment income tax
This article is general information as of October 2026, not tax, legal or investment advice. The example is hypothetical. Ask your own tax adviser. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.