Chapter 12 Business assets Flashcards
3 Categories of assets
Ordinary Income Assets
Capital Assets
Section 1231 Assets
Ordinary Income Assets
Accounts Receivable
Creative Works
Inventory
Ordinary Income Assets taxation
Gain at ordinary income tax rate
Losses can reduce ordinary income
Capital Assets
Everything that does not include
Accounts Receivable
Creative Works
Inventory
Depreciable real or personal property
Capital Assets taxation
Long-term gains/losses subject to preferential tax rates
Long term losses limited (net limited to $3,000 per year)
Section 1231 Assets
Depreciable real or personal property
Section 1231 Assets taxation
Gains taxed at LTCG rates
Losses treated as ordinary income
Section 1245 property
personal property
ordinary income to extent of depreciation recapture then LTCG
ordinary loss
Section 1250 property
real property
lesser of gain or accumulated depreciation at minimum rate of 25%
ordinary loss
Accelerated depreciation recapture
ordinary income rates and not 25%
section 1245 amount realized = adjusted basis
nothing to report
section 1245 amount realized is less than adjusted basis
ordinary loss
section 1245 amount realized is greater than adjusted basis but less than depreciation
ordinary income
section 1245 amount realized is greater than adjusted basis and more than depreciation
gain up to depreciation is ordinary income and anything in excess is ltcg
section 1250 prior to 1986 and used accelerated depreciation instead of straight line
the amount that would have been taken with straight line is taxed at 25%, the rest of the depreciation amount is taxed as ordinary income, the rest of the gain is taxed at LTCG
