Video instructions and help with filling out and completing Form 4797 Excel

Instructions and Help about Form 4797 Excel

Hello and welcome to this session this is Professor Farhad indecision this session we would look at depreciation recapture and what is depreciation recapture well for one thing for deep to have depreciation recapture the asset must be subject to depreciation or cusp recovery so if the answer the subject to depreciation what's gonna happen when we sell the asset we need to recapture any depreciation if we sold it at again so if we solve an asset and this asset was depreciated previously what do we have to do we have to recapture some of that depreciation now bear in mind losses on the pre shabal asset preceive 1231 treatment no recapture occurred obviously if you sold something at a loss well--there's because you sold it at a loss it means there is no gain the depreciation recapture only applies if you have again so for a for a loss you know you don't have to worry about depreciation recapture because the idea the idea of depreciation recapture is your gain will be reduced section 1231 gains will be reduced so if you sell it at a loss there is no gain to reduce in the first place so that's why if a loss situation occurred depreciation recapture does not apply so the appreciation recaptured characterizes gain that would appear to be 1231 as ordinary gain so what's gonna happen is this after you calculate the gain on section 1231 and hopefully you know how to calculate the gain on section 1231 I think after you calculate the gain let's assume you had the game just for simplicity you had a gain of I'm gonna use 25,000 well what you learn up at this point this game we're going to assume it's section 1231 now we introduce the depreciation recapture and the and section 1245 and 1215 we can say what's the difference between of 12 35 and 1250 I will tell you in a moment so such the gain will be recharacterized so what's gonna happen gonna change its character now it's 12 12 31 some of it might be ordinary you might have to end up with 5,000 ordinary and 20,000 volts stay section 1231 this is what we mean by depreciation recapture characterizes gain that would appear to be 1231 as ordinary gain what does it mean other than everything we're gonna have to pay more taxes on it now why did we have to pay more taxes because we have some depreciation recapture and we're gonna see what depreciation recapture is the code contains two major recapture provision - one is 1245 and the other one is 1250 1245 applies to personal property basically not real estate 1250 applies to real property or real estate okay so 1245 applies to stop to things like machinery equipment 1250 applies to real property so this is basically machinery equipment this basically some examples we'll be building okay so this is the difference between 12:45 and 1250 but they are both so both section 1231 is a 1231 asset 1231 assets are both parts are subject to 12:45 and 1250 depending on what type of answer are we dealing with is it is it first personal deep personality property or real property depends on what acid it is depreciation recaptured provisions generally override all other code section ders there are exception that the depreciation recapture rule just no the exception just FYI and a disposition would all gain is not recognized so depreciation recapture will not apply such as like kind exchange in involuntary conversion and were gain is not recognized at all such as gift for inherent is's in that situation depreciation recapture does not apply there are exceptions obviously which is it doesn't apply as we're going to learn it here depreciation recapture for 1245 property so what are 1245 property well do they're all 1231 that 12:35 is that basically think of it as a subsection of burglary it applies to tangible and intangible personally property so it's not real property it's not real property and non-residential Realty used an accelerated method 8 which is acres placed in service between 1981 and 1986 this is what it applies it flies to now remember what you have to know is it's not 1245 not real estate basically we're not dealing mainly with not dealing with real estate so everything else except in state what is the recaptured potential very capture potential this is important is the entire amount of accumulated depreciation for the answers what are we recapturing we are recapturing the amount of the potential is all the accumulated depreciation okay the method of depreciation does not matter for 1245 it doesn't matter which method of depreciation we are using we have to recapture all accumulated depreciation that we took on this asset and when he capture it and it's gonna be considered ordinary gain now you might be thinking why let me give you I just thought before we go into a specific example let me just let's assume we bought an asset for 100,000 so we bought an S of the constants one hundred thousand three years ago okay what's gonna happen year 1 year 2 and year 3 and just gonna throw up some numbers you wanted we depreciated the asset and we took $40,000 you have to be depreciated the asset with of $30,000 that's 40 70 and he F 3 we depreciated the asset and took $30,000 and the appreciation those are the depreciation taken now what's gonna what happened is in year 1 this depreciation to reduce ordinary income just because it was an expense and it reduced ordinary income the same for this year 2 and the same for this year 3 so when he had one year 2 and year 3 the depreciation what happened is it helped you reduce your ordinary income now when you sell this asset let's assume you solve it and again