R3- Depletion, Amortization, Section 1231, 1245, 1250 Assets

Question 1

Depletion Rules

Answer 1

A. Cost Depletion GAAP Method
Get cost per barrel
Cost Per barrel x Barrels Sold

B. Percentage depletion Non-GAAP Method
Preference Item for AMT
Tax Only
Deduction limited to 50% of taxable income
Percentage depletion may be taken even after there is no basis

Question 2

Amortization Rules - TAX Purposes

Answer 2

A. Intangibles- 15 yr straight line method
B. Others-
1. Business Startup Costs- 5000 expensed, balanced amortize over 180 mnths
2. Research Expenses- Amortize over 60 mnths
3. Pollution Control Facilities

Question 3

What is Section 1231 Assets?

Answer 3

• Real or Personal Property used in the taxpayer’s trade or business and held for over 12 months.
• Also, assets involuntarily converted are included
• It does not included inventory or goods held for sale

Question 4

What is Capital Gain Treatment for Section 1231 Assets?

Answer 4

Long Term Capital Gain

Question 5

How is loss treated for Section 1231 Assets?

Answer 5

Ordinary Loss

Question 6

Section 1245 Rules

Answer 6

• Personal Property used in a trade or business for over 12 months
• Machinery and Equipment Only
• Gains only
• No Loss allowed
• Recapture of all Accumulated Property

Question 7

Section 1245 Rules- Recapture of Accumulated Depreciation

Answer 7

Lesser of
1. Gain Recognized
OR
2. All accumulated Depreciation 
is recaptured as ordinary income

Any remaining gain is 1231 Gain

Question 8

Section 1250-

Answer 8

• Buildings
• Gains only
• Real Business Property

Question 9

Section 1250- Recapture rules

Answer 9

-Recapture difference between Straight Line
and Depreciation taken
-depreciation recaptured is limited to the recognized gain
-any gain in excess of original cost less straight line method is capital gain

Question 10

What are rules for 1250 Gain

Answer 10

Sale Price Section 1231 Gain
Accumulated Depri. Ordinary Income Recap
NBV No G/L- Cost Recovery
Cost