Bob Parrish CPA, P.C. Send email to pro1040@home.com (Hint: Any topic can be read in full screen by rt-click, then new window)
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Introduction
Objectives - Your Question
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Plain English Analysis - Your Answers
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Client Letter - What this idea is about
If you dispose of business property, you may have a gain or loss that you report on your tax return. However, in some cases you may have a gain that is not taxable or a loss that is not deductible. What is a Sale? How Is a gain or loss computed? Where is it reported? TOP
Engagement Status LetterYou have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice. This entire site is for educational or informational purposes only. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Thursday, February 22, 2007 02:28 AM
Learning Objectives (What You Asked)YOUR QUESTION(S) What is a Sale? How Is a gain or loss computed? Where is it reported?
What You Will Need
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Plain English Analysis What it does, Why it works - The Answer, Alternatives
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YOUR ANSWERS What it does, Explanation of this topic and how it may affect you: What is a sale or disposition - when does this apply? If you sell business property you are required to report the sale on your business tax return. A Sale or disposition of property includes the following transactions.
How Is the Gain or Loss computed?
SECTION 1231 TRANSACTIONS. These are sales and exchanges of property held more than 1 year and either used in a trade or business or held for the production of rents or royalties. They also include involuntary conversions of business or investment property, including capital assets. Transactions that result in gain or loss subject to section 1231 treatment are:
SECTION 1231 TREATMENT AS ORDINARY OR CAPITAL. To determine the treatment of section 1231 gains and losses, combine all section 1231 gains and losses for the year. If you have a NET SECTION 1231 LOSS, it is ordinary loss. If you have a NET SECTION 1231 GAIN, it is ordinary income up to the amount of your 1231 LOSSES from previous years. The remainder, if any, is long-term capital gain. NONRECAPTURED SECTION 1231 LOSSES are your net section 1231 losses for the previous 5 years that have not been previously applied against a net section 1231 gain by treating the gain as ordinary income. These losses are applied against your net section 1231 gain beginning with the earliest loss in the 5-year period. Section 1245 property includes any property that is or has been subject to an allowance for depreciation or amortization and that is: 1) Personal property (either tangible or intangible), 2) Other tangible property (except buildings and their structural components) used as: a) An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services, b) A research facility in any of the activities in (a) above, or c) A facility in any of the activities in (a) for the bulk storage of fungible commodities. 3) That part of real property (not included in (2)) having an adjusted basis that was reduced by certain amortization deductions (including those for certified pollution control facilities, removal of architectural and transportation barriers to persons with disabilities and the elderly, reforestation expenditures, or child- care facilities) or a section 179 deduction, 4) Single purpose agricultural (livestock) or horticultural structures, or 5) Storage facilities (except buildings and their structural components) used in distributing petroleum or any primary product of petroleum. The following assets are section 197 intangibles:
1) Goodwill,
2) Going concern value,
3) Workforce in place including its composition, terms,
and conditions (contractual or otherwise) of employment,
4) Business books and records, operating systems, and
any other information base including lists, or other
information with respect to current or future customers,
5) A patent, copyright, formula, process, design,
pattern, know-how, format, or similar item,
6) A customer-based intangible,
7) A supplier-based intangible,
8) A license, permit, or other right granted by a
governmental unit or agency (including renewals),
9) A covenant not to compete entered into in connection
with an acquisition of an interest in a trade or
business, and
10) A franchise, trademark, or trade name (including renewals).
SECTION 1250 PROPERTY includes all real property that is subject to an allowance for depreciation and that is not and never has been section 1245 property The following are definitions of basis, adjusted basis, amount realized, fair market value, and amount recognized. You need to know these definitions to figure your gain or loss.
Is My Gain or Loss Ordinary or Capital?You must classify your gains and losses as either ordinary or capital gains or losses. You must do this to figure your net capital gain or loss. Generally, you will have a capital gain or loss if you dispose of a capital asset. For the most part, everything you own and use for personal purposes or investment is a capital asset. Certain property you use in your business is not a capital asset. A gain or loss from a disposition of this property is an ordinary gain or loss. However, if you held the property for more than 1 year, you may be able to treat the gain or loss as a capital gain or loss. These gains and losses are called section 1231 gains and losses. Where Is It Reported? Report gains and losses from the following dispositions on the forms indicated. The instructions for the forms explain how to fill them out. Dispositions of business property and depreciable property. Use Form 4797, Sales of Business Property. If you have a taxable gain, you may also have to use Schedule D (Form 1040). Like-kind exchanges. Use Form 8824, Like-Kind Exchanges. You may also have to use Form 4797 and Schedule D (Form 1040). Installment sales. Use Form 6252, Installment Sale Income. You may also have to use Form 4797 and Schedule D (Form 1040). Casualties and thefts. Use Form 4684, Casualties and Thefts. You may also have to use Form 4797. Condemned property. Use Form 4797. You may also have to use Schedule D (Form 1040).
Start of Plain English Section Why or How it works - Both Sides of the Equation and Examples: Start of Plain English Section Start of Plain English Section Start of Plain English Section Other Start of Plain English Section Reserved
Start of Plain English Section
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Technical Analysis & Citations What It does, Why it works -
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CommentaryStart of Revenue Procedures Section Start of Private Letter Rulings
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Tax KillersThis is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth. Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place). The, research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives. Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
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Cost Killers Management Info Sys, Cost Acctg, Activity Based Costing)This is about Activity Based Costing - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.
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Preparing for your CPA, attorney, or preparing to start your own What to gather -
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From Your Other Business, or Financial Records From Corporation Records or Organization Records (meetings, etc.) Start of Preparing For You CPA Section
Forms - checklists, time-line to do, etc. Assistance - What To Do -
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Financial Accounting: Bookkeeping & Financials
Click on the title to expand or collapse the topics You may find more help by reviewing the following topics: What is a Sale? How Is a gain or loss computed? Where is it reported?
Financial Statement Presentation Back to Start of Financial Accounting: Bookkeeping & Financials Back to Start of Financial Accounting: Bookkeeping & Financials Back to Start of Financial Accounting: Bookkeeping & Financials Back to Start of Financial Accounting: Bookkeeping & Financials Bookkeeping Methods - Cash, Accrual and Other Back to Start of Financial Accounting: Bookkeeping & Financials How the Business Entity Affects the Recording
Compliance - what is required for protection, defense, etc.Compliance Checklist Back to Start of What is required for protection, defense, etc.
Alerts & Dangers - Risks, Asset Protection, IRS DefenseClick on the title to expand or collapse the topics
Back to Start of Alerts & Dangers Back to Start of Alerts & Dangers Back to Start of Alerts & Dangers Back to Start of Alerts & Dangers
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Spreadsheets & Computations
Spreadsheet #1 Back to Start of Spreadsheets & Math
Contracts, Trusts, etc.Agreement #1 Back to Start of Contracts, Trusts, etc.
Reports RequiredReport #1 Back to Start of Reports Required
Checklists for DeploymentChecklist #1 Back to Start of Checklists - Deployment
Checklist for MonitoringChecklist #1 Back to Start of Checklist - Monitoring
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property_sales_business.htm
If you sell 1245 or 1250 property on an installment sale, the entire amount of
depreciation "recapture" must be included in income in the year of
sale - regardless of the amount of cash or other property you receive.
