John Ullrich

1
Section 1231

• Presented By
• John Ullrich
• Jennifer Gannaban
• Mike Kyros

2
History

• Early 1930s business property was classified as a
  capital asset
• Revenue act of of 1938 added business property to
  the list of propertys not considered to be
  capital assets
• 1938 to 1942 gains and losses on the sale or
  exchange of business property were treated as
  ordinary gain and losses

3
History

• 1942 congress created the predecessor of sec.
  1231
• Tax reform act of 1986
• Tax payer relief act of 1997
• IRS restructuring and reformed act of 1998
• Advantages

4
SEC 1231 Property Defined

• Real property or depreciable property used in a
  trade or business that is held for more than one
  year.
• Examples
• A Yacht used for a Charter Business is held
  longer than a year can be eligible for 1231
  property

5
Section 1231 Property Defined

• Timber
• Coal
• Domestic Iron Ore
• Live Stock
• Unharvested crops

6
Section 1231 Treatment

• Step 1 determine all gains and losses that
  qualify as Sec. 1231 gains and losses
• Step 2 net 1231 gains and losses
• Step 3 gains can be taxed at the capital gains
  rate subject the the 5-year look back provision.
• Losses are considered ordinary income

7
Significance of 1231Example The yacht used in
the charter business20,000 gain on sale

• Ordinary gain
• Taxed at as high as 39.6
• Tax Liability 7,920

• 1231 gain
• Taxed at 20
• Tax Liability 4,000