It depends. The section 179 was used on a rental home, and it didn't qualify to be used. Section 179 is allowed only on a 'nonresidential' building.
That being said, you will include the amount of section 179 as well as all depreciation used on the rental home until sold. This will all be recaptured which eliminates ordinary income and does tax your resulting gain as a capital gain. It flows from the Form 4797 to the Schedule D. You are recapturing all depreciation now and it was sold.
By following the step-by-step with confidence, it is flowing property because it's residential rental property. The IRS considers this as Section 1250 property and gain.
IRS Publication 946
Qualified section 179 real property. You can elect to treat certain qualified real property you placed in service during the tax year as section 179 property. If this election is made, the term “section 179 property” will include any qualified real property that is:
Qualified improvement property, as described in section 168(e)(6) of the Internal Revenue Code; and
Any of the following improvements to nonresidential real property placed in service after the date the nonresidential real property was first placed in service.
- Roofs.
- Heating, ventilation, and air-conditioning property.
- Fire protection and alarm systems.
- Security systems.
For more information, see Special rules for qualified section 179 real property, later.
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