[nalratoss]

Capital asset: generally properties unless noted otherwise. Accounts receivable, inventory not included, real or depreciable property used in trade or business

Sec 1231: property>1 year, all real or depreciable property used in business, involuntary converted capital assets held in connection with trade or business.

Bottom line, Sec 1231 is related to trade or business

Sec 1245: depreciable personal property used in trade or business

Sec 1250: all depreciable realty

So let me get this straight, a capital asset doesn’t include real or depreciable property used in trade or business, yet other properties CAN be involved in trade or business and still classified as capital asset, correct?

FAR-80

AUD-77

REG-75

BEC-82

 

I'm done done!

[nalratoss]

Another thing that's confusing is that a capital asset doesn't necessary involve entirely capital gain/loss

You can have Sec 1245 or Sec 1250 gain/loss as ordinary income (i.e lesser of depreciation or gain recognized as OI and the rest dumped into 1231 gain/loss as capital gain/loss) despite they are capital assets.

Wait, are all 1245 1250 1231 properties capital assets?

We're talking about capital assets (PRACTICE), right?

FAR-80

AUD-77

REG-75

BEC-82

 

I'm done done!

[Anonymous]

Yeah, it sure is wretched stuff isn't it? My book also mentions Sec 291 which I also never had the pleasure of knowing.

[Anonymous]

Took REG a month ago, so my memory of the material may not be entirely accurate.

I think you answered your own question in your original post with the definitions. Capital Assets are not assets used in a trade or business. Capital Assets can be personal or real property, but just not used in trade or business. They result in Capital Gain or Loss when sold (Short-term or long-term depending on time held).

Assets used in a business/trade are Ordinary Assets if held for less than a year, and hence Ordinary loss or gain is recognized. If held for more than a year, then they are S.1231 assets and qualify for the special LTCG treatment. Loss is still ordinary.

S. 1245 (Personal Property) & 1250 (Real Property) recaptures some of the 1231 Gains (LTCG) as ordinary income when the asset is disposed of, since depreciation taken was deducted as an ordinary expense.

And then there's also the S. 1231 Look-back provision.

Hope this helps.

[Author]

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