Sections 1231, 1245, 1250, and 291 Flashcards
§1231 property is?
(simple definition)
Real property and depreciable property used in business rather than held for resale.
§ 1231 Computation
Step 1: Casualty Netting
Net any §1231 casualty gain with any L/T nonpersonal use asset casualty gain
minus
net §1231 casualty loss with any L/T nonpersonal use casualty loss
§1231 Computation
Step 2: if net gain results from step 1 (2 parts)
A. Gain is carried forward and added to §1231 gains and §1231 condemnation gains
B. The total from part A is netted against §1231 losses
§1231 Computation
Step 3: if step 1 or step 2B results in a net loss
Everything is separated:
All gains become ordinary gains
§1231 losses are deducted for AGI
All other losses are deducted from AGI (2%)
§1231 Compuation
Step 4: If results from step 2B is a gain
Apply the §1231 lookback of any nonrecaptured losses from the previous 5 years
If a gain survives it is a LTCG
The portion that is offset is ordinary income.
If §1245 results in a loss, the loss is §1231 loss. How are §1231 losses treated?
They are ordinary losses deductible for AGI
§1245 recapture formula
What portion is §1245?
What portion is §1231?
Sales
(cost - depreciation) =
Gain
If gain is > depreciation then depreciation is §1245 OI and the difference is §1231 gain.
If gain is < depreciation then all of the gain is §1245 OI
§1245 Property
(list)
- Amort property such as GW, patents, copyrights, & leaseholds of §1245 prop. (professional athletes prop is §1245)
- Amortization of reforestation expenditures
- Expensing costs to remove architectual & transportation barriers that restrict handicapped/elderly
- §179 immediate expensing of deprec. tangible personal prop costs
- Elevators & escalators acquired before Jan 1, 1987.
- Pollution control facilities, railroad grading, & tunnel bores on the job training and child care facilities wich amortization is taken
- single purpose ag & horticulture structures & petroleum storage facilities
- 15 yr, 18 yr, and 19 yr nonresidential real estate that uses accelerated depreciation and was put into use between 1/1/81 and 12/31/86.
§1250 Property is?
Depreciable real property not subject to §1245.
Intangible real property, leaseholds of §1250 prop
§1250 does not apply if?
Only S/L depreciation is taken
or
Property is sold at a loss
If S/L depreciation is used on §1250 property what is the gain classified as?
The entire gain to the amount of S/L depreciation taken will be unrecaptured §1250 and subject to 25% tax. Any amount of the gain exceeding the S/L depreciation will be taxed at 0/15%
§1250 Recapture applies to?
(list of 4)
- Residential real estate aquired before 1987
- Nonresidential real estate acquired before ‘81
- Real property predominantly used outside of the US
- certain government finan and low income housing
Unrecaptured §1250 gain is taxed at?
25%
§1231 losses first offset…
0/15% then 25%
Any §1231 lookback first recharacterizes
25% then 0/15%
§1231 Assets consist of 3 types
Pure §1231
§1245
§1250
Pure §1231= Land
§1245 = Depreciable personal use property, intangibles, & some real property (nonresd, accel deprec, between 81-86)
§1250 = depreciable real property
§1250 Recapture calculation
Sales
(Cost - Depreciation)
= Gain
Difference between accel deprec and S/L deprec is the recaptured §1250 OI
Any amount of the gain left over is §1231 taxed at
25% - any amount = S/L
0/15% is any amount of the gain exceeding the S/L portion
Before 1962 §1245 didn’t exist, all of the gain was?
§1231
Under §1250 whatever isn’t recaptured is §1231 gain taxed at?
25%
Under §1250 if the S/L depreciation is used and there is no additional depreciation to qualify as §1250 OI, total gain is §1231 – what portion is 25% and what portion is 0/15%
Any amount of the gain = to the S/L depreciation is 25%
Any amount exceeding the S/L depreciation is 0/15%
§291 Applies to?
Corporations
After what year does §291 apply to?
1982
§291 Recaptures?
20% of the gain that is not recaptured by §1250
(gain - §1250 recapture = # * 20% = §291)
If individual taxpayer and asks for §291 amount?
Answer is ZERO
If corporation holds §1245 property will there be any §291 gain?
No, §1245 will have recaptured fully
§291 Calculation
Sales
(Cost - Depreciation)
=Gain/Loss
Find §1250 OI
§291 = (Gain - §1250 OI) * 20%
§1231 = Gain - §1250 - §291 (figure out 25% portion and 0/15% portion)