Both, and the split is the whole ballgame at sale. The 5- and 7-year personal property a study identifies is section 1245 property. The building shell and its structural components are section 1250 property. The two sections recapture very differently, and the federal tax classification on your depreciation schedule controls: not the county assessor's records, not the deed, and not how the sale contract describes the real estate.
Section 1245: all depreciation, ordinary rates
Section 1245 covers the tangible personal property a study carves out: carpet, cabinetry and millwork, appliances, decorative lighting, and the dedicated electrical and plumbing that serves equipment. On sale, IRC section 1245(a) recaptures every dollar of depreciation taken on these assets as ordinary income, but only up to the gain actually allocated to them. There is no rate cap. The saving grace is economic: used short-life components command modest prices, so the gain allocated to them, and therefore the ordinary layer, is often far smaller than the depreciation that was claimed.
Section 1250: excess over straight line, plus the 25 percent layer
Section 1250 covers real property: the shell, roof, foundation, general electrical and plumbing, and HVAC. Ordinary recapture under IRC section 1250 applies only to depreciation in excess of straight line, and because MACRS requires straight-line depreciation for 27.5-year and 39-year buildings, a building placed in service after 1986 normally generates zero section 1250 ordinary recapture. What it does generate is unrecaptured section 1250 gain: gain up to the straight-line depreciation claimed, taxed at a maximum of 25 percent under IRC section 1(h)(6).
Land improvements: 1250 property that behaves like 1245
15-year land improvements, parking lots, fencing, site utilities, landscaping, are section 1250 real property, but MACRS depreciates them on the 150 percent declining balance method and bonus depreciation can expense them entirely in year 1. Everything above straight line counts as additional depreciation, recaptured as ordinary income under section 1250, while the straight-line slice joins the 25 percent bucket. After a 100 percent bonus year, most of a land improvement's depreciation sits in the ordinary layer until the excess burns off over the holding period.
Why the classification source matters
At sale, Form 4797 needs gain reported asset by asset: Part III separates section 1245 dispositions from section 1250 dispositions. The asset detail from the engineering study, or the depreciation schedule built on it, is the documentation that supports that split, and the IRS Cost Segregation Audit Techniques Guide tells examiners to test exactly this. Amadae prepares the depreciation schedules and the Form 4797 split from the study detail when it files the return, and its cost segregation screen models the 1245 versus 1250 mix up front, so the recapture character of each dollar is visible before you ever commission a study.