Professional Documents
Culture Documents
by sale or exchange
do not result in capital gain or loss: Recognized gain or loss is ordinary in character
ordinary the normal course of business–all other assets (not capital, not §1231, held ≤ 1 year): Inventory, A/R, supplies,
Capital sales of assets that are not in the normal course of business
-Asset held by a firm for long-term investment rather than for active business or commercial use: investment
securities, investment land
- Generally, investment and personal use assets nondepreciable business personalty
-Equity and creditor interest in other firms: stocks, bonds, partnership interests, marketable securities.
-Self-created intangible assets: contracts, technological processed and patents
§1231 trade or business assets held > 1 year: equipment, business realty(land, building ,machinery, warehouse)
Treatment of excess of capital loss over capital gain (net capital loss)
Individuals Corporations
Deduction for net Can deduct $3,000 of net loss per year against ordinary No deduction
loss income
Carry forward indefinitely back 3years and forward 5 years against capital gains
Tax tate preferential tax rates on long-term capital gain Pay tax at regular rates: Capital gains are preferred to
1)Gains and losses from sales and exchanges of capital ordinary income because capital gains absorb capital
losses
assets held for more than 12 months are long-term
2)0%, 15%, 25%, and 28% preferential rates
Convention
1) Half year(personality----assets with recovery periods from 3 to 20 years) Table 7.2
2) Exception: Mid-quarter (personality) Appendix: if more than 40% (dollars term) of the assets are placed in the last 3 months of the
year (applied to all the assets)
3) Mid-month (Realty--assets with recovery periods of 25,27.5,30 or 39 years) Table 7.3 /7.4
Q1: Is the gain from the disposition of §1245 or
§1250 property?
Individual Corporation
Ord. Gain =
lesser of
Ord. Gain = excess of
Ord. Gain =
lesser of accumulated
lesser of
accumulated depreciation
excess of
depreciation over
accumulated
OR straightline
depreciation
realized gain OR
over straightline
OR realized gain
realized gain
a.k.a. Partial
a.k.a. Full
Recapture
Recapture Ord. Gain =
Ord. Gain =
20%
20%
recapture* recapture*
Depreciation Remainder of
Recapture §1231 Gains
For §1245 Property:
Gain is ordinary up to
100% of depreciation
taken (a.k.a. full recapture
gain)
For corporate-owned
§1250 property: Resulting Resulting
OR Net Loss
Gain is ordinary up to 20% Net Gain
x [excess of full recapture
gain over partial recapture
gain]*
also
Loss known
Lookback as
Rule
Gain is ordinary
up to ordinary
losses claimed in
prior 5 years
Net
§1231
Net
Losses
§1231
Gains