Responses to at least two classmates’ postings should be approximately 200 words and should be thoughtful, substantial, polite and more extensive than a simple “well done” phrase or “I agree.” Consider points of agreement, disagreement, assumptions, and value judgments. You will be able to respond to others after you submit your initial post. Your grade will be affected by how thoughtful your replies and initial questions are answered.
1)When recognizing a gain or loss, taxpayers must first determine the character of that gain/loss as ordinary, capital, or Section 1231 (Spilker, et al., 2021). If an asset is held for one year or less and is used in a taxpayer’s trade or business, it is characterized as an ordinary asset and taxed at ordinary income rates (Spilker, et al., 2021). If an asset is held for investment or personal-use purposes, whether held for short or long term, it is characterized as a capital asset and taxed according to capital gains rates, though losses on personal-use assets are not deductible (Spilker, et al., 2021). If an asset is a long-term asset (held for greater than one year) and is land or a depreciable asset used in the taxpayer’s trade or business, it is characterized as Section 1231 (Spilker, et al., 2021). However, it is notable that Section 1231 combines the benefits of both ordinary and capital rates and ultimately treats them as such. When there is a realized gain under Section 1231, it is treated as a capital asset and subject to capital gains rates, but when there is a realized loss under Section 1231, it is treated as a loss to ordinary income (Spilker, et al., 2021).
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Order Paper NowSection 1245 recapture applies to personal property and amortizable intangible assets, while Section 1250 recapture applies to real property, such as buildings (Spilker, et al., 2021). Both Section 1245 and Section 1250 recapture apply to the lesser of (1) accumulated depreciation and (2) gain recognized and reclassify that amount as ordinary income (Spilker, et al., 2021). Similarly, in both, the remaining recognized gain is characterized as Section 1231 gain and treated accordingly, and assets sold at a loss are not subject to depreciation recapture (Spilker, et al., 2021). However, under current law, Section 1250 recapture generally only applies to C Corporations under Section 291 depreciation recapture as compared above (Spilker, et al., 2021).
Spilker, B. C., Ayers, B. C., Lewis, T. K., Weaver, C. D., Barrick, J. A., Robinson, J. R., Worsham, R.G. (2021). McGraw-Hill’s taxation of individuals and business entities. New York, NY: McGraw Hill LLC.
2) Explain the difference between ordinary, capital, section 1231 assets.
An ordinary asset is the type of asset that is most commonly used in the taxpayer’s business. Any type of asset that is not capital or business (sec 1231) asset is considered to be an ordinary asset, so basically, it’s a leftover from sec 1231 or capital asset. The examples could be cash, work supplies, inventories, pre-paid expenses, machinery etc. A capital asset is the type of asset that is that most people prefer who wants to buy for investment and not for the business and they are notable pieces of property such as homes, investment goods, bonds etc. in terms of a business asset, the capital asset has a helpful and is not planned to sell during the basic course time of business. Section 1231 assets are consisting of any downgrade asset that is used in business for more than a year. Examples of section 1231 asset buildings or lands, but the requirements for SEC 1231 assets may classify the assets on the base of their gain as if the assets have a notable gain; then, their treatment is long-term capital gain treatment. If the asset doesn’t have notable gain, then the treatment will be loss treatment.
-Compare and contrast section 1245 and section 1250 recapture.
SEC 1245 applies to the tangible, personal property assets while the SEC 1250 is a depreciable real property that cost recovery deductions. SEC 1245 focuses only on the depreciation expense; meanwhile, SEC 1250 keeps the focus on the additional depreciation. The only similarity between the sec 1245 and SEC 1250 is their purpose. Their purpose is to stop the taxpayers from corrupting the SEC 1231.
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