Section 1231, 1245, 1250 and depreciation

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Section 1231 Assets

sale or exchange or real or depreciable business property, involuntary conversion of business property, involuntary conversion of certain capital assets, certain farming transactions involving crops and livestock, transactions involving timber, iron, ore and coal, must be long-term property

Benefits of Section 1231 Assets

gains and losses are grouped and compared, net gain considered ordinary income to the extent of net 1231 losses claimed in the previous five year, any remaining is a long-term capital gain, any net losses are treated as ordinary losses

Casualty and theft losses

gains and losses from involuntary conversions must be grouped separately, if a gain occurs it is added to other 1231 gains, net losses are treated as ordinary loss and not grouped together

Section 1245 (recapture)

Requires any gain on section 1245 property be treated as ordinary income to the extent of all depreciation taken

Section 1250 Property

Applies to real property, requires excess depreciation (MACRS over straight-line) be recaptured as ordinary income

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