Section 1231 and Section 1250 Recapture Codes in Taxes Essay

Open, View, and/or
Download this Document

Total Length: 574 words ( 2 double-spaced pages)

Total Sources: 2

Page 1 of 2

Tax Code 1231, 1245, 1250, 291

A Section 1231 asset is an asset that is non-capital, that it may receive capital gain treatment. To be a Section 1231 asset, the asset must be personal or real property used in a trade/business that has been owned for a year -- for example, a piece of equipment like a tractor. Equipment is treated the same whether it is owned by a sole proprietor or a corporation. So if it were purchased for $20,000, sold for $50,000, with a depreciation of $4,000, with a $16,000 basis, the gain would be $34,000. If the tractor were held as a 1231 asset, the gain would be the same regardless of whether you were a sole proprietor or a corporation. The gain would be counted as an ordinary income -- and the $4,000 depreciation portion of the $34,000 could be counted as Section 1245 gain (ordinary income). The long-term capital gain (or the Section 1231 gain) would be the remaining $30,000.

If one were applying these codes to real estate, the case would go like this: if a building were purchased and owned for at least a year and used for a business/trade, it could count as a Sec 1231 asset.

Stuck Writing Your "Section 1231 and Section 1250 Recapture Codes in Taxes" Essay?

View All Our Example Section 1231 and Section 1250 Recapture Codes in Taxes Essay

Have A Custom Example Essay Written

A difference can here be applied if the owner of the building is a sole proprietor rather than a corporation. Using the same prices for purchasing, depreciation, and selling, in this case all $34,000 would count as Sec 1231 gains for the sole proprietor. However, if the real estate is owned by a corporation, the corporation is obliged to recapture some of the gain as ordinary income. This is Sec 291 gain. The corporation must take 20% of the depreciation ($800 in this case), which will then be counted as ordinary income under Sec 291. The balance of the gain is then treated as long-term capital gain (Sec 1231 gain), which would be $33,200. Thus, there is a difference in the way a sole proprietor vs. a corporation must treat real estate.

These rules, of course, apply only to depreciation that took place after 1987. If it took place before 1987 and the asset is only just now being sold the rules are different. So, for example, a building that was put in service before 1987 could be treated differently. Say, the building was $350,000 and.....

Show More ⇣

     Open the full completed essay and source list


OR

     Order a one-of-a-kind custom essay on this topic


sample essay writing service

Cite This Resource:

Latest APA Format (6th edition)

Copy Reference
"Section 1231 And Section 1250 Recapture Codes In Taxes" (2016, February 24) Retrieved May 21, 2025, from
https://www.aceyourpaper.com/essays/section-1231-section-1250-recapture-codes-2159675

Latest MLA Format (8th edition)

Copy Reference
"Section 1231 And Section 1250 Recapture Codes In Taxes" 24 February 2016. Web.21 May. 2025. <
https://www.aceyourpaper.com/essays/section-1231-section-1250-recapture-codes-2159675>

Latest Chicago Format (16th edition)

Copy Reference
"Section 1231 And Section 1250 Recapture Codes In Taxes", 24 February 2016, Accessed.21 May. 2025,
https://www.aceyourpaper.com/essays/section-1231-section-1250-recapture-codes-2159675
   

Open, View, and/or
Download this Document
order custom essay example