Exam 14: Property Transactions: Capital Gains and Losses, section 1231 and Recapture Provisions

A net short-term capital loss first offsets any 28% net long-term capital gain before it offsets either 25% net long-term capital gain or 0%/15%/20% net long-term capital gain.

Section 1231 property generally includes certain purchased intangible assets (such as patents and goodwill) that are eligible for amortization and held for more than one year.

The Code contains two major depreciation recapture provisions-§§ 1245 and 1250.

Personal use property casualty gains and losses are not subject to the § 1231 rules.

Section 1231 property generally does not include artistic compositions.

Section 1231 property generally does not include accounts receivables arising in the ordinary course of business.

Short-term capital losses are netted against long-term capital gains and long-term capital losses are netted against short-term capital gains.

An individual taxpayer with 2015 net short-term capital loss of $5,000 generally can deduct up to $3,000 for AGI and carry the balance forward to 2016.

Short-term capital gain is eligible for a special tax rate only when it exceeds long-term capital gain.

In the "General Procedure for § 1231 Computation: Step 2.§ 1231 Netting," if the gains exceed the losses,the net gain is offset by the "lookback" nonrecaptured § 1231 losses.

Section 1231 property includes nonpersonal use property where casualty gains exceed casualty losses for the taxable year.

Rental use depreciable machinery held more than 12 months is an example of a § 1231 asset.

A personal use property casualty loss is generally deductible only to the extent it exceeds 10% of AGI.

Section 1231 applies to the sale or exchange of business properties,but not to personal use activity casualties.

Casualty gains and losses from nonpersonal use assets are not netted against casualty gains and losses from personal use assets.

If § 1231 asset casualty gains and losses net to a gain,the gain is treated as a § 1231 gain.

All collectibles short-term gain is subject to a potential alternative tax rate of 28%.

Involuntary conversion gains may be deferred if the proceeds of the involuntary conversion are reinvested.

If there is a net § 1231 loss,it is treated as an ordinary loss.

Nonrecaptured § 1231 losses from the six prior tax years may cause current year net § 1231 gain to be treated as ordinary income.