Flashcards in Taxes: Section 1231 Assets Deck (6)
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1
Taxes
Section 1231
General
Purpose
- create capital gain treatments for businesses
Definition
- used in a business
- held for 12 months
- include realty and depreciable property
- exclude capital assets, inventory, AR, copyrights, and government publications
- "sale or exchange" and "involuntary conversions"
2
Taxes
Section 1231
Recapture
Recapture
- recapture of depreciation reduces the amount of gains eligible for 1231 treatment by recharacterizing them as ordinary income
Section 1245
- recharacterizes gains on personalty property (assets other than buildings) as ordinary income to extent of depreciation
Section 1250
- recharacterizes gains on realty property (buildings) as ordinary income to extent of accumulated depreciation in excess of straight-line depreciation. Get special tax rate (25%).
3
Taxes
Section 1231
Shortcuts
- recapture does note recharacterize losses
- gain on sale of land held long term in a business are always 1231 assets since land does not depreciate
- gains on sale of business personalty held long term are OI unless sold for more than purchase price
- gains on sale of buildings held long term in a business are 1231 gains but will be taxed as ordinary to extent accelerated depreciation exceeds straightline with straightline taxed at 25%
4
Taxes
Section 1231
Section 291
Section 291
Section 1245 recapture if Section 1245 property
Less: actual Section 1250 recapture
Excess amount
x20%
= Section 291 recapture
5
Taxes
Section 1231
Netting
- S. 1231 gains > losses = Long Term Capital Gain
- S. 1231 gains
6
