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Property Transaction Tax Implications

This document discusses taxation rules regarding transactions in property, including: 1) Recapture provisions for Section 1250 property where straight line depreciation was used, requiring corporate taxpayers to increase ordinary income by 20% of what would have been recaptured as ordinary income if the property was Section 1245 property instead. 2) Treatment of Section 1231 gains and losses from sale of a building and land by McEwing Corporation, resulting in a net Section 1231 gain that offsets a long-term capital loss and does not change the corporation's taxable income. 3) Recognition of gain from involuntary conversion of machinery as ordinary income to the extent of prior depreciation deductions, with the rest treated as

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El Sayed Abdelgawwad
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4 views2 pages

Property Transaction Tax Implications

This document discusses taxation rules regarding transactions in property, including: 1) Recapture provisions for Section 1250 property where straight line depreciation was used, requiring corporate taxpayers to increase ordinary income by 20% of what would have been recaptured as ordinary income if the property was Section 1245 property instead. 2) Treatment of Section 1231 gains and losses from sale of a building and land by McEwing Corporation, resulting in a net Section 1231 gain that offsets a long-term capital loss and does not change the corporation's taxable income. 3) Recognition of gain from involuntary conversion of machinery as ordinary income to the extent of prior depreciation deductions, with the rest treated as

Uploaded by

El Sayed Abdelgawwad
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd

520 MODULE 34 TAXES: TRANSACTIONS IN PROPERTY

line depreciation was used, there is no recapture under


Sec. 1250. However, Sec. 291 requires that the amount of
ordinary income on the disposition of Sec. 1250 property by
corporations be . ncreased by 20% of the additional amount
that would have been ordinary income if the property had
instead been Sec. 1245 property. If the building had been
Sec. 1245 property the amount of recapture would have been
$30,000 ($200,000 - $170,000). Thus, the Sec. 291 ordi-
nary income is $30,000 x 20% = $6,000. The remaining
$44,000 is Sec. 1231 gain.
61. (b) The requirement is to determine McEwing Cor-
poration's taxable income given book income plus addi-
tional information regarding items that were included in
book income. The loss on sale of the building ($7,000) and
gain on sale of the land ($16,000) are Sec. 1231 gains and
losses. The resulting Sec. 1231 net gain of $9,000 is then
treated as L TCG and will be offset against the L TCL of .
$8,000 resulting from the sale of investments. Since these
items have already been included in book income, McEw-
ing's taxable income is the same as its book income,
$120,000. .
62. (a) The realized gain resulting from the involuntary
conver ion ($125,000 insurance proceeds - $86,000 adjusted
basis = $39,000) is recognized only to the extent that the
insurance proceeds are not reinvested in similar property
($125,000 - $110,000 = $15,000). Since the machinery was
Sec. 1245 property, the recognized gain of $15,000 is re-
captured as ordinary income to the extent of the $14,000 of
depreciation previously deducted. The remaining $1,000 is
Sec. 1231 gain.

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