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1231 Property Questions

Section 1231 property refers to the tax treatment of certain types of property including depreciable property and real property like buildings and equipment used in a trade or business. This property must be held for more than one year, and does not include inventory, property held for sale in the ordinary course of business, artistic creations held by their creator, and government publications. Below are some of the most commonly asked questions about 1231 Property answered by the Experts.

Is a vehicle that is being sold as a fixed asset from one corporation to another and has been depreciated in prior years be considered section 1231 property or would it be considered under section 1245 property since it was sold for more than its depreciated value?

As a general rule section 1245 assets are a subdivision of 1231 assets, and most generally are personal assets which are subject to depreciation. Therefore the vehicle would be classified as a section 1245 asset, but any gain remaining after applying the depreciation recapture rule is treated as a section 1231 gain.

Would a property that was originally purchased for $230,000 then sold for a loss of $165,000 offset capital gains of $100,000 from sale of stock?

In many cases the capital gains may be offset by the loss on the sale of the 1231 property as long as it was held for longer than one year. If it was then it is fully deductible as an ordinary loss and can offset any other income or ordinary capital.

If a person’s tax rate is 35% and they sell two section 1231 properties for a total gain of $30,000, how would these gains be taxed?

In most cases 1231 properties generate ordinary losses and capital gains, therefore the gain on the sale of both properties would be taxed at long term capital tax rates of 15% making the tax approx $4,500.

What would a person report on their tax return on two properties that have been condemned?

Case Details: The Fair Market Value (FMV) of the first one $130,000 (adjusted basis of $120,000) and it is investment property. The second one is a section 1231 property asset with a FMV of $46,000 (adjusted basis of $50,000).

Typically the gain on the investment property would be long term capital gain which totals $10,000. And on the section 1231 property will be ordinary loss which totals $4,000.

What forms would a person use to record the sales gain or loss for both an investment property that the individual owned for two years then sold, and a rental property (1231 property) that they bought and sold in the same year?

In most cases the person would use Internal Revenue Service (IRS) tax Schedule D showing capital gains/losses on the investment property. For the rental property IRS form 4797 would be a good place to start. taxact.com could be helpful in this matter as well.

The original version of section 1231 was conceived as a way to help the shipping industry during World War II. Back then it only applied to gains and losses from involuntary conversions of business-use property. It now includes property that has been lost in an involuntary conversion1 (theft, natural disaster, etc.) Also it includes the sale or exchange of any business-use property. For more information pertaining to 1231 property contact the thousands of Experts.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: General
Satisfied Customers: 572
Experience:  10 years experience
16356563
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Tax Professionals are online & ready to help you now

Wallstreet Esq.
Tax Attorney
Satisfied Customers: 570
10 years experience
Wendy Reed
Enrolled Agent
Satisfied Customers: 3052
15+ years tax preparation and tax advice.
Mark D
Enrolled Agent
Satisfied Customers: 985
MBA, EA, Specializing in Business and Individual Tax Returns and Issues

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