Chapter 8 Property Transactions

Chapter 8 Property Transactions - Chapter 8 Property...

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Chapter 8 Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions Captial Transactions – General Remarks o The code makes a distinctions between personal-use capital assets and business use capital assets, giving preferential tax treatment to transactions involving business-use capital assets. o Personal-use capital assets are commonly referred to as simply “Capital Assets” o Business-use capital assets are commonly referred to as “1231 Property” o General Rules: Capital Asset Transactions Gains: either ordinary income (short term) or capital gains (subject to lower tax rates) Losses: capital losses (only first 3000 can be used each year with the carried forward indefinitely) 1231 Property Transaction Gains: capital gains (subject to lower tax rates) Losses: ordinary losses (can be deducted against ordinary income without limits) Capital Assets – Defined o Capital assets generally refer to any property other than: Ordinary income property (inventory, receivables, creative works created by taxpayer) Depreciable business property (building and machinery) Non-depreciable business property (land) (1231 asset) o Thus, capital assets would include investment property such as stocks and bonds, and personal use assets such as cars, principal residences, household furnishings and jewelry. (NOTE: Paintings, manuscripts, and other creative works
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