Chapter 13

1231 &Recapture

Special Tax Rate for LTCG

History

Current

Definition of Capital Asset

1221: not cap asset

Court cases

Other IRC Sections

Holding Period (LT > 1 yr)

> 12 mos

18 mos - 1997 only

tacking

short sales

Netting of CG’s & CL’s Noncorporate T/P

Step 1 - net S/T v. S/T, L/T v. L/TStep 2 - if opposite signs, net S/T v.

L/T, NCG if LTCGNCG alternative tax computationC/L c/o

1231 Assets

DefinitionExcluded Property - including not

held LT (LT>1yr)Nonpersonal use property - net

casualty losses and gains1231 netting

1245 Recapture

Full recaptureNon real estate

(167,168,179,197;1056 - sports franchise player K’s - limited in alloc to 50%)

Nonresidential real estate 81-86 (ACRS 15,18,19)

1250 Recapture

Additional depreciation subject to recapture = excess over S/L

Nonresidential real estate - 100% additl deprec after 69-81

Residential real property - 69-75 addit’l deprec x (100% - 1% per

mo >100)

75 - recapture 100% of additional depreciation > excess over S/L

MACRS 87 - no recapture (S/L)

Recapture special rules

Charitable contributionscorporate sales of R/E: 1250 & 291

(20% x 1245-1250) (Tax 2)Sales between related parties - 1239Reporting - Forms 4797, 4684

Unrecaptured 1250 Gain (25%/15% CG)

Depreciable R/E - CG that would be OI if 1245 did apply (minus 1250 OI) is taxed at 25%/15% - rest CG taxed at reg CG rate (e.g. 20%/10%)

Constructive sale (new 1259) “Appreciated financial Position” e.g., “Short sales against the box”

Previously G or L not recog’d until closed

Gain now recognized on short sale Constructive gain added to basis - For subseq sale (i.e., when transac closed)

Caution - may not recog L Effective date - after 6/8/97