Chapter 13 Property Transactions Section 1231 and Recapture
Chapter 13 Property Transactions: Section 1231 and Recapture
Learning Objectives Identify Sec. 1231 property Understand the tax treatment for sec 1231 transactions Apply the recapture provisions of sec.1245 Apply the recapture provisions of sec.1250 Describe other recapture applications
Learning Objectives • Identify Sec. 1231 property • Understand the tax treatment for Sec. 1231 transactions • Apply the recapture provisions of Sec. 1245 • Apply the recapture provisions of Sec. 1250 • Describe other recapture applications
Tax Treatment for Sec. 1231 Sec. 1231 gains are netted against sec 1231 losses Net Gains treated as LTCG Net Losses- Treated as ordinary loss Five year Look-back rule -any net Sec 1231 gain is ordinary to the extent of any nonrecaptured net Sec. 1231 losses from previous five years Tax rate for Sec. 1231 gain could be 20% or 10%
Tax Treatment for Sec. 1231 • Sec.1231 gains are netted against Sec. 1231 losses • Net Gains treated as LTCG • Net Losses – Treated as ordinary loss. • Five year Look-back rule – any net Sec. 1231 gain is ordinary to the extent of any nonrecaptured net Sec. 1231 losses from previous five years. • Tax rate for Sec.1231 gain could be 20% or 10%
Section 1231 Defined Real property or depreciable property used in a trade or business for more than one year Certain types of property do not qualify as Sec. 1231 property Musical composition Inventory Copyright Letters or memorandum
Section 1231 Defined • Real property or depreciable property used in a trade or business for more than one year • Certain types of property do not qualify as Sec. 1231 property – Musical composition – Inventory – Copyright – Letters or memorandum
Section 1231 Defined Congress extended sec 1231 treatment to transactions involving: Timber Coal Livestock Land with unharvested crops
Section 1231 Defined • Congress extended Sec. 1231 treatment to transactions involving: – Timber – Coal – Livestock – Land with unharvested crops