Business & farm

Let me do a scenario with you that illustrates how this can occur. 

1. Imagine an investor buys an $800,000 real estate property with a 40-year useful life(this is hypothetical only). Five years later, employing the accelerated depreciation method, this investor claims accumulated depreciation expenses in the amount of $120,000, resulting in a cost basis of $680,000.
2. Let us further assume that this investor unloads the property for $750,000, resulting in a $70,000 total taxable gain. Due to the fact that the accumulated straight-line depreciation amounts to $100,000 (the $800,000 initial price, divided by 40 years, multiplied by five years of use), the Internal Revenue Service must then tax $20,000 of the actual depreciation exceeding straight-line depreciation, as ordinary income. The IRS would subsequently tax the $50,000 that remains of the total gain, at applicable capital gains tax rates.

    

3. Under Section 1250, the recapture of gain as ordinary income is restricted to the actual gain recorded on a real property sale. In our example, if the investor unloaded the real property for $690,000, thereby producing a gain of $10,000, the Internal Revenue Service would only categorize $10,000 as ordinary income, not the additional $20,000.

If we apply the above scenario to your case, it sounds like your total gain was $10,000. Your 1250 ordinary gain was $5K because of a difference between the actual depreciation taken vs the depreciation that would have been taken if the straight-line method was used. The remaining $5K is capital gains. The good news in all this is that your capital gains is taxed at the capital gains rate.