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Section 1231

Section 1231. 1231 assets Long term realty and depreciable personalty used in T or B Others (see text) . Section 1231. 1231 assets Long term realty and depreciable personalty used in T or B Others (see text) Other assets included in 1231 calculation

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Section 1231

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  1. Section 1231 • 1231 assets • Long term realty and depreciable personalty used in T or B • Others (see text)

  2. Section 1231 • 1231 assets • Long term realty and depreciable personalty used in T or B • Others (see text) • Other assets included in 1231 calculation • Long term nonpersonal-use capital assets lost in theft or casualty

  3. Section 1231 • Net casualties first • If net loss, treat gains as ordinary and losses as usual • If net gain, add that net gain to other Sec. 1231 gains and losses

  4. Section 1231 • Net casualties first • Net remaining 1231 gains/losses • All 1231 assets other than casualties • Any net gain from first step • Offset gains other than 25% gains first

  5. EXAMPLE • May has the following dispositions: • Sales of business assets: • LT machine (5,000) • ST computer (3,000) • LT building 250,000 • Casualties: • LT vase (6,000) • LT car 15,000 • What is May’s net 1231 gain/loss?

  6. Section 1231 • Net casualties first • Net other Sec. 1231 gains/losses • If net loss: • Gains are ordinary • Losses receive usual treatment

  7. Section 1231 • Net casualties first • Net other 1231 gains/losses • If net gain  do 1231 lookback • Gain to extent of unrecaptured loss is ordinary • Reclassify 25% gain first • Remaining gain is LTCG

  8. Section 1231 Section 1231 lookback example: 1993 (50,000) 1994 20,000 1995 (15,000) 1996 5,000 1997 10,000 1998 7,000 1999 10,000 2000 6,000

  9. EXAMPLE • May has the following dispositions: • Sales of business assets: • LT machine (5,000) • ST computer (3,000) • LT building 250,000 • Casualties: • LT vase (6,000) • LT car 15,000 • What is the amount and character of May’s recognized gains/losses?

  10. Section 1245 Recapture • Section 1245 property • Depreciable and amortizable personalty • nonresidential realty from 1981-1986 for which accelerated depreciation was used • Others (see text) Section 1245 rules • Gain to extent of cost recovery taken is treated as ordinary.

  11. Example • May Corp. sells a machine and a boat for $20,000 and $25,000, respectively. The machine cost $30,000, and they have taken $17,000 MACRS. The boat cost $22,000, and they have taken $16,000 MACRS. • What is the amount and character of their recognized gains?

  12. Section 1250 recapture • Section 1250 property • Realty that is not 1245 property • Realty disposed of in the first year • Section 1250 rules • Gain to extent of excess dep’n is ordinary • Excess dep’n = • actual dep’n – SL dep’n • All dep’n if asset sold in first year

  13. Section 1250 recapture • Unrecaptured 1250 gain • Gain to extent of dep’n is either 1250 gain or unrecaptured 1250 gain

  14. Example • Wise Corp sold a building for $1,300,000. The building cost $400,000 in 1979. The corp took $275,000 in double declining balance depreciation. Straight line depreciation would have been $250,000. • What is the amount and character of her recognized gain?

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