Form 4797 Sale of Bus Properties

Sec. 1231 Properties

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

Treatment of Sec.1231 Gain/Loss.

Net Loss: Ordinary Loss

Net Gain: LTCG

1231 5-yr look-back rule

converts current-year net Section 1231 gain into ordinary income to the extent you have unused net Section 1231 losses from the preceding five tax years. Any remaining gain receives long-term capital gain treatment.

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

Treatment of settlement charges selling rental property