– 1245 Recapture (Same for Individuals and Corporations):
1245 gain – to the extent of depreciation – Ordinary income
1231 gain – any gain leftover after subtracting depreciation – Capital gain
– 1250 Recapture (Individual)
1250 gain – to the extent depreciation exceeds Straight line depreciation – Ordinary income
25% gain – the amount of straight line depreciation – 25%
1231 gain – any gain leftover after 1250 and 25% gain recapture – Capital gain
– 1250 Recapture (Corporation)
1250 gain – to the extent depreciation exceeds Straight line depreciation – Ordinary income
Sec. 291 gain – 1245 gain minus 1250 gain = excess gain. Excess gain multiplied by 20% – Ordinary income
1231 gain – any gain leftover after 1250 and Sec. 291 gain recapture – Capital gain
– 1231 Netting:
1231 loss – To the extent 1231 losses exceed 1231 gains – Ordinary loss
1231 gain – To the extent 1231 gains exceed 1231 losses – LT capital gain (Subject to LookBack Rule)
*If netting leads to 1231 gain, then gain is subject to recapture through the LookBack Rule.
– LookBack Rule: Net 1231 gains must be offset by net 1231 losses from the 5 preceding years that haven't been recaptured.
The gain that offsets 1231 losses from 5 preceding years – Ordinary loss
The 1231 gain that remains after netting – Capital gain
Done: 5/22/14
"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway
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