Form 4797 Sale of Bus Properties

Sec. 1231 Properties

Real or personal depreciable properties used in the business held for <1 yr.

Treatment of Sec.1231 Gain/Loss

Net Loss: Ordinary Loss

Net Gain: LTCG

1231 look-back rule

If net 1231 gain CY must be treated as ord. Inc. to the ext of any nonrecap. Net sec 1231 losses from the previous 5 yrs.

Sec. 1231 vs Sec 1245 vs Sec 1250 Properties

Sec 1231 is broad umbrella category and Sec. 1245 and Sec. 1250 are a subset of Sec. 1231

Sec 1245 Property

Depreciable personal property excluding real properties, with unrecaptured depreciation.

Sec. 1245 gain or loss treatment

Gain upto depreciation = ordinary gain, excess gain = capital gains

Loss= ordinary loss

Sec. 1250 property

All depreciable real property that is not Sec 1245 property (real property)

Sec. 1250 depreciation method

Straight-line for post-1986 properties (39yrs for nonresidential and 27.5yrs for residential

Sec. 1250 adjustment

Excess depreciation (accelerated depreciation > straight-line)

Tax rate for unrecaptured sec. 1250 gain

Max. 25% (more than LTCG and less than ordinary income rate)

Acquisition of Sec. 179 property

Reduces K1 income/loss flow thru partners and shareholders.

Disposition of Sec. 179 property

Recaptured amt on K1 which will be reported on Form 4797 in 1040