Can Form 4797 Beginners 2023-2024

Hi everyone, this is Phil Jaeger of Jaeger CPA Review. I thought I'd go over a few sections of the Internal Revenue Code dealing with regulations that give people trouble. The first item I want to talk about is section 1231. A section 1231 asset is a non-capital asset, but it may get capital gain treatment. To be a section 1231 asset, it must be either personal property or real property used in a trade or business, and it has to be held for more than 12 months. Now let's deal with one type of personal property used in a trade or business, which is held for more than 12 months. That is a section 1231 asset. Let's assume that we're going to sell this item, and that item is equipment. So we have a piece of equipment that we're going to sell. The selling price is $50,000. The cost of the equipment was $20,000, and we took depreciation of $4,000, giving me a basis of $16,000. Now, if I compare my selling price of $50,000 to my basis of $16,000, there is a gain on the sale of this asset for $34,000. Now, if it is a Section 1231 asset, how do you treat this gain as far as whether it's ordinary or capital? Well, first of all, whether you are a corporation or a sole proprietor, the rule is the same as well as how you treat the gain. The first thing is you have to recapture some of the gain, which means it's treated as ordinary income. The amount of the gain that's treated as ordinary income is the depreciation taken. So we took $4,000 of depreciation, and that $4,000 of the $34,000 gain is ordinary income, called section 1245 gain. Therefore, $4,000 of the $34,000 would be section...