1231 gain from K1 is not fully counted as longterm capital gain.

[alwaysfriday72]

I got K1 (1120S) from a business which I sold in 2016. The gain from the sales proceed is attributed to Net section 1231 gain (9 in 1120S). When I entered this amount to TT, the federal tax increases by 22.5% of the gain. This is way higher than I expected. Why isn't the 1231 gain fully recognized as LT capital gain? If it is, the rate should be close to 15%, right? CPA who handled the business transaction said the whole amount should be considered as capital gain and I hold the interest more than a year.

[TaxLady]

This is difficult to answer without knowing all of your information, but Section 1231 gain is indeed long term Capital gain. Capital gain can be taxed as high as 20%, depending on your other taxable income.  In addition it can trigger Net Investment Income tax, which you can tell by seeing if there's an entry on Line 62b on your 1040.  Also, a large gain could phase out the allowed amount of your Itemized deductions and Personal exemptions, and can affect other deductions and credits as well.  It is probably a combination of these items that is causing the total jump in your tax.