What is Section 1239 (related-party sales of depreciable property)?
In short
Gain on a sale of property that is depreciable to the buyer, between related parties such as a shareholder and a corporation they own more than 50% of, is ordinary income to the seller.
Key takeaways
- It stops the seller getting capital gain while the related buyer depreciates a stepped-up basis.
- Related parties include controlled entities and certain trusts.
- It applies on top of the normal depreciation recapture rules.
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 taxpayer sells stock with a basis of $10,000 to their brother for $6,000. The brother later sells the stock to an unrelated party for $9,000. How much gain does the brother recognize?