Video instructions and help with filling out and completing Fill Form 4797 Troubleshooting

Instructions and Help about Fill Form 4797 Troubleshooting

Hey everyone I wanted to walk you through problem 3 - 33 because to be honest I was a little confused when I tried to work myself through this problem I I planned on assigning and I have assigned problem 32 sorry pardon 33 to you guys and so whenever I want whenever I assign a problem I want to make sure that I can go through and solve it myself and that it makes sense to me before I'm assigning it to you obviously and when I went through this I actually got part of it wrong and I couldn't figure out why and I think part of the issue here is that I'm a compliance person and compliance means I prepare tax returns for a living so I'm very used to using forms to to calculate and apply my to calculate taxable income and to and that all of the components of taxable income using the rules and the forms will do that and they do it in on layman's manner so I really I really like having the forms in front of me when I'm asked a question like this so what I actually did was I went into the IRS website and I pulled form 47 97 and I worked myself through it and I ended up getting the same answer as they did but to me it made a little bit more sense so let me walk you through the facts of this problem first and then I'm going to move over to the form that I filled out for you guys and I'm gonna walk you through that form and I hope that helped so gamma corporation sold the following property on March 3rd of the current year they sold securities equipment building and land now first of all what do we know about securities securities are a capital asset they therefore do they fall outside of the definition of 1231 property section 1231 property is property that's used in the Creator business and its depreciable and I will say that land is included in there even the land is not depreciable land is a 1231 asset oh and it has to be it has to be have a holding period of more than one year in order to be treated as a 1231 asset and the reason we like 1231 tax practitioners and tax payers like 1231 is because when you sell a 1231 asset you have 1231 gain and the definition of 1231 gain is capital gain and why do we like capital gain instead of ordinary gain well if you know the rule that says that for corporations you are only able to deduct capital losses to the extent of capital gains in other words if you have a capital gain of $10,000 in a given year from sales of securities and then you also suffer a capital loss on the sale of some other capital asset and let's say the loss is $12,000 so you have a $10,000 capital gain and a $12,000 capital loss you will have you'll be able to use 10,000 of that loss to offset the cap the $10,000 capital gain so you'll end up with a $2,000 capital loss carry over to the following year you actually carry it back you carry it back a couple years or you can carry it forward but you're not able to use capital losses in excess of capital gains in any given year for a corporation that's different for individuals individuals get to use an extra three thousand dollars of capital losses in excess of capital gains so the route that's where corporations differ from individuals so we like capital - we like to have any sort of income treated as a capital gain because if we have capital loss carryovers or we have current year capital losses won't be able to absorb those capital losses whereas if we didn't have any capital gain we'd have to carry those we'd have to disallow the capital losses in the current year and carry them over to the following year or carry them back to a previous year where we had some capital gain to absorb and we'd have to file an amended return in that case so we really like capital gains however the IRS has come in and said to the extent that you actually took depreciation in a prior year which depreciation is an ordinary expenditure and it's deducted against ordinary income we're going to make you treat the portion of the of the 1231 gain the lesser of the 1231 gain or the total accumulated depreciation that you took in prior years on that asset as ordinary income we're going to make you recapture it as ordinary income so it changes the character from capital to ordinary so if you have in this case this equipment here they had a hundred and thirty-five thousand dollar gain on sale of the equipment however they had accumulated depreciation of a hundred and twenty five so the lesser of 125 or 130 5 is 125 so 125 thousand dollars of that hundred and thirty-five thousand dollars section 1231 gain which would normally be capital in nature is going to be recaptured or changed the character of we're going to have to change the character of 125 out of 135 from capital to ordinary and then the lot the other ten would be treated as capital gain there's another rule that comes into play - let's say that you have a section 1231 loss so instead and in this case we do have a 1231 loss on the sale of the land so the other beautiful thing about section 1231 is that what it says is to the extent you have a 1231 loss it's not capital loss because we don't want capital losses remember we like capital gains and we hate capital losses because we might not be