Can someone please clarify the section 1231, 1245 and 1250 gain? I am taking the test tomorrow and I really need help! This is what I understand

If you are given equipment sale for $200k which was originally purchased for $150K and depreication was $25K

Gain = 200 - (150-50) = 100K

Of the 100K gain, section 1245 gain is $50K (depriciation amount) and the remaining gain is 1231 gain. Is this true?

If the facts above are the same, but it is a sale of a building and straight line depriciation would have been $20K

1250 gain would be 25 - 20 = 5K

And the rest of the $95K gain is 1231.

PLEASE HELP!!

I will give a shot.

Fist of all where did you get the 100K? My solution is this.

Section 1245:

200K-150K = 50K,  25K will be treated as ordinary income to the extent of the property depreciation which is 25k, and the rest will be treated as capital gain.

Section 1250:

200k-150K = 50k, same as above except you will only recognize 20K as ordinary income (since that is the amount being depreciated) remember! to the extend of the depreciation and the remaining gain will be treated as capital gain.

Anyone can correct me if I am wrong.

Thx Lucky

As you can tell, I am totally confused.

I thought that you net your original purchase price (150K) and your depreciation (25K) in order to get the gain: 200-(150k-25) = 75?

1250 gain: I thought the gain is the difference in depreciation methods? 25 (accelerated) - 20k (strt line) = 5k

I guess I don't understand 1250.

1245 I understand, your recognize ordinary income up to the amount of depreication and the remaning is captial gain.

Hi,

I am going to pass REG tomorrow too.

Sec 1245:

Gain from sale = Sale price $ 200 - AB (Purchase price $150 - Depreciation $50) = $100

Gain split in 2:

OI = Depreciation = $50, 1231 gain = remainder $50

Another example:

Same, but sale price = $ 120

Gain = $120 -(150 - 50) = $20

Entire $20 is OI, because first goes recapture, which turns into OI

Anther example:

Same, but sale price = $ 20

Loss = $20 - (150 - 50) = ($80)

Entire loss is 1231, because nothing to recapture.