Example of Net Section 1231 Computation
The following example will cover:
- Gain on Section 1231 property
- Loss on Section 1231 property
- Depreciation recapture
- Nonrecaptured net Section 1231 losses
- Form 4797 reporting:
- Part I:
- Used to enter losses on Section 1231 property,
- The proceeds from sales or exchanges reported to you on Form
1099-B or 1099-S.
- Part II:
- Used to report ordinary gains and losses (include property held
one year or less).
- Part III:
- Used to report only gains on real and depreciable property held
over one year.
- Part IV:
- Used to report Section 179 recapture when business use of
property drops to 50% or less.
In tax year 2011 you sell your business. It includes Section 1231
property A and property B.
Here are the facts:
- Property A:
- Gross sales price: $20,000
- Basis: $10,000
- Depreciation Allowed: $2,000
- Adjusted basis: $8,000
- Basis: $10,000 minus Depreciation: $2,000.
- Total Gain: $12,000.
- Gross sales price: $20,000 minus Adjusted Basis: $8,000
- Form 4797:
- Enter the above information for Property A in
- Property B:
- Gross sales price: $3,000
- Basis: $5,000
- Depreciation allowed: $1,000
- Adjusted basis: $4,000
- Basis: $5,000 minus Depreciation: $1,000
- Loss: $1,000
- Gross sales price: $3,000 minus Adjusted Basis: $4,000
- Form 4797:
- Enter the above information for Property B in
- Nonrecaptured net Section 1231 losses:
- You had net section 1231 losses in the following
two years that were not offset against net section 1231 gains:
- In 2006 you had a nonrecaptured net Section 1231 loss of
- In 2008 you had a nonrecaptured net section 1231 loss of
- Total nonrecaptured net Section 1231 losses: $4,000 ($1,500
Computing Net Section 1231 Gain and Loss-Continued:
Example of Section 1231 Computation-Continued (results)