Sections 1231, 1245, 1250, and 291

Question 1

§1231 property is?

(simple definition)

Answer 1

Real property and depreciable property used in business rather than held for resale.

Question 2

§ 1231 Computation

Step 1: Casualty Netting

Answer 2

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

Question 3

§1231 Computation

Step 2: if net gain results from step 1 (2 parts)

Answer 3

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

Question 4

§1231 Computation

Step 3: if step 1 or step 2B results in a net loss

Answer 4

Everything is separated:

All gains become ordinary gains

§1231 losses are deducted for AGI

All other losses are deducted from AGI (2%)

Question 5

§1231 Compuation

Step 4: If results from step 2B is a gain

Answer 5

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.

Question 6

If §1245 results in a loss, the loss is §1231 loss. How are §1231 losses treated?

Answer 6

They are ordinary losses deductible for AGI

Question 7

§1245 recapture formula

What portion is §1245?

What portion is §1231?

Answer 7

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

Question 8

§1245 Property

(list)

Answer 8

• 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.

Question 9

§1250 Property is?

Answer 9

Depreciable real property not subject to §1245.

Intangible real property, leaseholds of §1250 prop

Question 10

§1250 does not apply if?

Answer 10

Only S/L depreciation is taken

or

Property is sold at a loss

Question 11

If S/L depreciation is used on §1250 property what is the gain classified as?

Answer 11

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%

Question 12

§1250 Recapture applies to?

(list of 4)

Answer 12

• 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

Question 13

Unrecaptured §1250 gain is taxed at?

Answer 13

25%

Question 14

§1231 losses first offset…

Answer 14

0/15% then 25%

Question 15

Any §1231 lookback first recharacterizes

Answer 15

25% then 0/15%

Question 16

§1231 Assets consist of 3 types

Pure §1231

§1245

§1250

Answer 16

Pure §1231= Land

§1245 = Depreciable personal use property, intangibles, & some real property (nonresd, accel deprec, between 81-86)

§1250 = depreciable real property

Question 17

§1250 Recapture calculation

Answer 17

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

Question 18

Before 1962 §1245 didn’t exist, all of the gain was?

Answer 18

§1231

Question 19

Under §1250 whatever isn’t recaptured is §1231 gain taxed at?

Answer 19

25%

Question 20

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%

Answer 20

Any amount of the gain = to the S/L depreciation is 25%

Any amount exceeding the S/L depreciation is 0/15%

Question 21

§291 Applies to?

Answer 21

Corporations

Question 22

After what year does §291 apply to?

Answer 22

1982

Question 23

§291 Recaptures?

Answer 23

20% of the gain that is not recaptured by §1250

(gain - §1250 recapture = # * 20% = §291)

Question 24

If individual taxpayer and asks for §291 amount?

Answer 24

Answer is ZERO

Question 25

If corporation holds §1245 property will there be any §291 gain?

Answer 25

No, §1245 will have recaptured fully

Question 26

§291 Calculation

Answer 26

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)