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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

Taxes
Section 1231
General

Sale $620
> $120 1231 Gain
Buy $500
> $180 Ordinary Income Subject to 25%
Basis $320

Other: Corporate carryback/forward capital gains are always short term

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