Exam 28: Property Transactions: Section 1231 and Recapture

When appreciated property is transferred at death, the recapture potential carries over to the person who receives the property from the decedent.

Gifts of appreciated depreciable property may trigger recapture of depreciation of cost-recovery deductions to the donor as of the date of gift.

Section 1250 does not apply to assets sold or exchanged at a loss.

If the recognized losses resulting from involuntary conversions arising from casualty or theft exceed the recognized gains from such events (i.e. a net loss from the casualty), all of the involuntary conversions are treated as ordinary gains and losses.

The amount recaptured as ordinary income under either Sec. 1245 or Sec. 1250 can never exceed the realized gain.

Lucy, a noncorporate taxpayer, experienced the following Section 1231 gains and losses during the years 2011 through 2016. Her first disposition of a Sec. 1231 asset occurred in 2011. Assuming Lucy had no capital gains and losses during that time period, what is the tax treatment in each of the years listed? Section 1231 Gams Section 1231 Losses 2011 \ 10,000 \ 8,000 2012 \ 18,000 \ 23,000 2013 \ 9,000 \ 13,000 2014 \ 22,000 \ 16,000 2015 \ 25,000 \ 17,000 2016 \ 11,000 \ 18,000

Installment sales of depreciable property which result in recaptured income under Secs. 1245 or 1250 require that the recaptured income be recognized in the year of sale.

A business plans to sell its office building which it acquired and placed in service in 1995. Sec. 1250 requires a portion of gain realized on the sale of a buildings used in a business and depreciated under MACRS to be recaptured as ordinary gain.

Daniel recognizes $35,000 of Sec. 1231 gains and $25,000 of Sec. 1231 losses during the current year. The only other Sec. 1231 item was a $4,000 loss three years ago. This year, Daniel must report

During the current year, Hugo sells equipment for $150,000. The equipment cost $175,000 when placed in service two years ago, and $55,000 of depreciation deductions were allowed. The results of the sale are

The sale of inventory results in ordinary gain or loss.

Network Corporation purchased $200,000 of five-year equipment on March 24, 2015. They elected to expense $60,000 of the cost under Sec. 179 in effect that year. After depreciating the equipment $28,000 in 2015 and $22,400 in 2016, the equipment was sold for $190,000. a. What is the amount of the realized gain (or loss) on the sale? b. How is the gain or loss taxed?

Pete sells equipment for $15,000 to Marcel, his son. The equipment cost $20,000 and has accumulated depreciation of $12,000. Marcel will use the equipment in his business. a. What is the amount and character of Pete's gain on the sale? b. How does your answer change if the sales price is $22,000?

During the current year, George recognizes a $30,000 Section 1231 gain on sale of land and a $18,000 Section 1231 loss on the sale of land. Prior to this, George's only Section 1231 item was a $14,000 loss six years ago. George must report a

Connors Corporation sold a warehouse during the current year for $980,000. The building had been acquired in 1980 at a cost of $830,000. The building is fully depreciated. What is the amount and nature of the gain or loss on the sale of the warehouse?