Property Transactions: Advanced Planning

Cost recovery

100% bonus depreciation (permanent) · Section 179 · cost segregation · qualified improvement property (15-year). Faster deductions → more recapture later.

Character

Section 1245: all depreciation → ordinary. Real property: unrecaptured Section 1250 gain 25%. Section 1231: 5-year lookback.

Installment sales

Gain as paid (gross profit ratio); recapture in year of sale; related-party resale within 2 years accelerates; not for inventory or public securities.

Like-kind exchange (Section 1031)

• Real property only; qualified intermediary; 45 / 180 days.
• Full deferral: equal or greater value, all cash reinvested, replace debt.
• Hold until death → step-up erases deferred gain.

Other

• Involuntary conversions: 2 years (3 for condemned real property).
• Opportunity zones: defer gains; exclude 10-year appreciation; permanent under the One Big Beautiful Bill Act (OBBBA).
• Alternatives: hold until death, donate, charitable remainder trust, contribute to an entity, borrow.
• Full disposition releases suspended passive losses.

Exam traps

• The installment method can't be used for losses — a loss is recognized in the year of sale.
• For an opportunity zone deferral, only the capital gain needs to be reinvested within 180 days, not the full sale proceeds.
• A like-kind exchange between related parties is taxed after all if either party disposes of the property within 2 years.