Property Transactions
Property transactions encompass the tax rules for gains and losses from the sale, exchange, or disposition of assets, including characterization as ordinary, capital, or Section 1231.
Explanation
The amount realized minus adjusted basis determines gain or loss. Characterization depends on the type of asset: capital assets produce capital gains/losses, Section 1231 assets (depreciable business property held over one year) may produce either, and ordinary assets produce ordinary income/loss. Depreciation recapture under Sections 1245 and 1250 recharacterizes gain as ordinary income to the extent of prior depreciation. Section 1231 netting provides favorable treatment — net gains are long-term capital, net losses are ordinary.
Key Points
- •Gain/loss = amount realized minus adjusted basis
- •Section 1245 recapture: all depreciation recaptured as ordinary income
- •Section 1231 net gains are LTCG; net losses are ordinary
Exam Tip
Always check for depreciation recapture before applying Section 1231 netting — Sections 1245 and 1250 override Section 1231 treatment.
Frequently Asked Questions
Related Topics
MACRS Depreciation
The Modified Accelerated Cost Recovery System (MACRS) is the primary depreciation method for tax purposes, assigning assets to recovery periods with prescribed depreciation methods and conventions.
Like-Kind Exchanges (Section 1031)
Section 1031 allows taxpayers to defer gain on the exchange of qualifying real property held for business or investment use when replaced with like-kind real property.
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