Property Transactions: Gains, Losses & Like-Kind Exchanges

Basics

Realized = amount realized − adjusted basis. Personal-use losses: not deductible. Long-term = held > 1 year.

Individuals' capital gains

• Net losses: $3,000 per year against ordinary income; carry forward forever.
• Long-term rates 0% / 15% / 20%; unrecaptured Section 1250: 25%; collectibles: 28%.
• Net investment income tax (NIIT) 3.8% above $200,000 / $250,000.
• Corporations: capital losses only against gains; back 3, forward 5.

Business property

• Section 1231: net gain = capital; net loss = ordinary; 5-year lookback.
• Section 1245 (equipment): ordinary up to all depreciation.
• Real property: straight-line → unrecaptured Section 1250 gain (25%); corporations: 20% ordinary under Section 291.

Deferrals and exclusions

• Section 1031: real property only; 45-day identify / 180-day close; gain = lesser of realized or boot (incl. net debt relief).
• Section 1033: recognize proceeds not reinvested; 2 years (3 for condemned real property).
• Section 121: $250,000 / $500,000; own and use 2 of 5 years.

Loss limits

Wash sale: ±30 days, loss added to new basis. Related party: disallowed; buyer offsets later gain only.

Exam traps

• Section 1031 is mandatory when its conditions are met — a taxpayer can't choose to recognize a loss instead.
• Wash sale rules disallow losses only; gains on the same trades are taxed normally.
• The Section 121 exclusion can be used only once every 2 years.
• Long-term means held more than one year — exactly one year is short-term.