Selling Your Business
- Selling Your Business
- Tax Aspects of Selling a Sole Proprietorship
- Types of Business Property
- Tax Forms Used When Selling a Business
- Reporting Sale of Business on Form 8594, Asset Acquisition Statement
- Section 1231
- Computing a Net Section 1231 Gain and Loss
- Section 197 Intangibles and Recapture Rules
More Tax Topics
- Business Structures
- Start-up Costs
- Depreciation
- Car Expenses
- Home Office Deduction
- Travel Expenses
- Hiring Workers
- Meals and Entertainment
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
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How to Compute and Report a Net Section 1231 Gain or Loss-(Depreciation Recapture)
Depreciation Recapture:
When you sell Section 1231 property at a gain, part of the gain that is equal to depreciation allowed (or allowable) must be reported as ordinary gain as opposed to capital gain.
The rule for reporting recaptured depreciation as ordinary gain is as follows:
- Report as ordinary gain the SMALLER of:
- Depreciation allowed (or allowable), or
- The amount of the gain.
Depreciation allowed is what you actually claimed. Depreciation allowable is what you could have claimed using a proper depreciation method.
To illustrate depreciation recapture:
- Assume you realized a $5,000 gain on the sale of a piece of equipment held over one year, and
- On this equipment you claimed $2,000 of depreciation.
What you need to do:
- Report the $2,000 of depreciation claimed (allowed) as ordinary gain.
- This is recaptured depreciation.
- Subtract the $2,000 of recaptured depreciation from the $5,000 gain.
The $3,000 portion of the gain that exceeds depreciation recaptured may or may not receive long-term capital gain treatment.
Whether the entire $3,000 receives long-term capital gain treatment depends on whether any nonrecaptured net Section 1231 losses of the previous five years exist.
Next:
Computing a Net Section 1231 Gain and Loss-Continued: Nonrecaptured Net Section 1231 Losses
Related Links
- Selling a Group of Assets
- When Does a Group of Assets Constitute a Trade or Business?
- Types of Business Property
- What is Section 1231?
- What is the Section 1231 Tax Advantage?
- What Are Section 1231 Transactions?
- What is Not Section 1231 Property?
- Tax Forms and Schedules Used In Selling A Business
- How to Compute and Report a Net Section 1231 Gain or Loss
- Depreciation Recapture
- Nonrecaptured Net Section 1231 Losses
- Example of Section 1231 Computation
- About Form 8594 Asset Acquisition Statement
- Allocating the Sales Price of Form 8594
- How the Residual Method Works.
- What Are Section 197 Intangibles?
- Recapture of Amortization
- New Recapture Rules For Section 197 Intangibles After August 8, 2005
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