Need Some Deductions for 2011?

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10 Oddball Tax Deductions

Updated for 2011

Computing a Net Section 1231 Gain and Loss

Computing and reporting a net Section 1231 gain or loss can be broken down into five steps:

Identify Section 1231 property.
- This is real or depreciable business property held over one year.
Figure gain or loss on each property.
- Gain or loss is figured by subtracting the adjusted basis of each property from the gross sales price of each property.
Perform Section 1231 netting:
- Combine the losses (if any) and gains on all property to determine your overall net Section 1231 loss or net Section 1231 gain.
If you end up with a net loss:
- A net Section 1231 loss is treated as an ordinary loss.
If you end up with a net gain:
- Report as a long-term capital gain on Schedule D the portion of the gain that EXCEEDS the following two items:
  - Depreciation recaptured, plus
  - Any nonrecaptured net Section 1231 losses of the previous five years (if any).
- The recaptured depreciation amount and the recaptured net Section 1231 losses of the previous five years are reported as ordinary gains in Part II of Form 4797 (Form 4797 instructions).

Gross sales price equals:

Money you received, plus
The fair market value of other property you received (if any), plus
Any of your debt assumed by the purchaser, including any existing mortgage on your property (if any) the buyer assumes or takes the property subject to.

Adjusted basis for each depreciable asset includes:

Money you paid, plus
The value of any property you gave up, plus
Any debt you incurred or assumed from the seller, plus
Sales taxes paid, plus
Any costs to deliver the property and place it in service (e.g., installation costs), plus
Any other costs associated with the initial purchase of property.

Increase basis by:

The cost of additions or improvements that extend the useful life of the property for more than one year or adapt it to a different use.

Normal repairs and maintenance are not capital improvements; they are deducted immediately.

Decrease basis by:

Deprecation allowed or allowable
- Depreciation allowed is what you actually claimed.
- Depreciation allowable is what you could have properly claimed had you not taken any depreciation deductions.
Section 179 deductions claimed

After adding and subtracting the applicable items from your initial basis, the net amount is your adjusted basis.

See Form 4797 instructions for line 22 for other items that may need to be deducted from basis.

Computing a Net Section 1231 Gain and Loss-Continued: Depreciation Recapture