What is Section 1231 property?
In short
Section 1231 property is depreciable property and real property used in a trade or business and held for more than one year. A net Section 1231 gain is treated as long-term capital gain; a net loss is ordinary.
Key takeaways
- Depreciation recapture is applied first, before Section 1231 treatment.
- Net gain is recharacterized as ordinary to the extent of net Section 1231 losses in the prior five years.
- Inventory and property held mainly for sale to customers are excluded.
Where it's tested
REG: Property Transactions: Gains, Losses & Like-Kind Exchanges — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A business sells equipment for $55,000. Original cost was $50,000 and accumulated depreciation was $30,000. How is the gain characterized?