Property Transactions

Question 1

Gain (Excluded or Deferred)

Answer 1

HIDE IT

Homeowners exclusion: $250k single, $500k MFJ. 2 of 5 yr residence.

Involuntary conversion: reinvest insurance or condemnation proceeds in a similar property within two years.

Divorce: nontaxable.

Exchange of like kind: deferred. Gain recognized to the extent of cash, non qualifying property, or debt relief.

Installment sale: recognize when cash payments are received.

Treasury/capital stock: no gain recognized.

Question 2

Disposition of trade or business use

Answer 2

Capital assets: held for investment or personal use.

Noncapital assets: ordinary assets, section 1231 LT (may be capital or ordinary.

Question 3

Section 1231/1250

Answer 3

Section 1231: LT business use assets, including section 1245 depreciable personal property, section 1250 depreciable real property, and land.

Question 4

Net 1231 gain/loss

Answer 4

Net 1231 gain: capital gain, after depreciation recapture and/or 1231 five year look back.

Net 1231 loss: ordinary loss. May cause future 1231 gains to be treated as ordinary income.

Question 5

Section 1245 Depreciation Recapture

Answer 5

Personal property sold at a gain. Lesser of the gain or accumulated depreciation is treated as ordinary income. Any remaining is treated as section 1231 gain netted.

Question 6

Section 291 Depreciation Recapture

Answer 6

Depreciable real property sold at a gain C Corp only: 20% of lesser of the gain or accumulated depreciation is treated as ordinary income. Remaining gain is treated as 1231 gain netted.

Question 7

Section 1250 Depreciation Recapture

Answer 7

Individuals: All section 1231 gain, then lesser of gain or accumulated depreciation on assets classified as “unrecaptured Section 1250 gain”

Question 8

Section 1231 five year lookback

Answer 8

If net section 1231 gain for the year, look back at previous five years. Current gain is treated as ordinary income to the extent of unrecaptured prior losses. Unrecaptured gains is treated as ordinary income first.

Any section 1250 gain remaining after five year look back is taxed at 25% section 1250 gain rate.
Any section 1231 gain remaining after five year look back is long term capital gains taxed a preferential LTCG 0/15/20%.

Question 9

Section 1245/1250 Depr recapture

Answer 9

Section 1245 - personal property assets (machinery or equipment). Depreciation recaptured as ordinary income. Lesser of: recognized gain or total accumulated depreciation.

Section 1250 - depreciable real property (buildings). Depreciation in excess of straight line is recaptured as ordinary income.

Remaining gain is taxed as capital gain.