Section 1231, 1245, 197, 1250 Flashcards Preview

REG LISA > Section 1231, 1245, 197, 1250 > Flashcards

Flashcards in Section 1231, 1245, 197, 1250 Deck (6):

Personal Capital Assets versus Non Capital Assets
UR going to need to look at publication 544
What determines whether it's capital or non-capital?

Capital Assets belong on Schedule D - personal investments
Appears it's a personal "held for investment" versus ordinary course of business thing
Inventory, a/r, depreciable property, intangibles, copyrights created by you, supplies, us government publications, real property used in trade or business, goodwill

Basically the incentive is to report it as a capital asset so you can apply the lower tax rates, so they are looking to avoid that


What about patents are they capital assets? Hw about copyrights?
What are they capital assets (personal) or non-capital?
Gain or loss treated how?

OK different rules if you invented or wrote it versus purchasing it as part of a business.

If held over a year on sale or exchange of amoritizable or depreciable intangible property (which I guess means


Notes: What are not capital assets

Inventory, A/R or Property used in trade or business
Copyrights for stuff you invented (meaning it's not something u purchased for business)
But copyrights you purchased as an investment are capital assets???
But it says Patents are capital assets if you are the inventor???


Patents - capital or not, compare to copyrights.

Patents ARE capital assets if you invented the thing (think how the drug companies must love this) and the income from them is capital gain income. But if you purchased it as part of a trade or business it isn't. If you did the latter you amoritize it

Copyrights are not capital assets (think of the musician, it's like business income) unless you purchase them for investment (huh, but I think this is right)

I added a PDF to Ibooks about this


Go to Question 803 in Gleim and research
Goodwill: Not a capital asset, eligible for section 1231 treatment, which means that you have to recapture the depreciation as ordinary income under section 1245 and then the rest is long term capital gain

Bottom line:
Section ______ on capital assets says nothing in business is a capital asset
Then Section 1231 turns around and says yeah it is a capital asset if you sell it, but you have to recapture the depreciation as though it's ordinary income and we'll let you treat the rest as a long term capital gain

Now I'm also confused here because I don't think corps get to use LTCG treatment. So this is for who? Pass throughs and for when you sell the business?


What's section 351 about?

Nontaxable exchange of property to corporation for stock, must own 80% (original owners in combination)