Form 4797 Excel 2023-2024

Hello and welcome to this session. This is Professor Farhad Indecision. In this session, we will look at depreciation recapture and what it means. To have depreciation recapture, the asset must have been subject to depreciation or cost recovery. So, if the asset has been subject to depreciation, what happens when we sell it? We need to recapture any depreciation that was taken. If we sell an asset that was previously depreciated, we have to recapture some of that depreciation. However, losses on the previously depreciated asset do not require recapture. If you sell something at a loss, there is no gain to reduce, so depreciation recapture does not apply. Depreciation recapture only applies when you have a gain. The recaptured depreciation would be characterized as ordinary gain. After calculating the gain on section 1231, which I assume you know how to do, let's say the gain is $25,000. Now, we introduce depreciation recapture and two sections: 1245 and 1250. The difference between 1245 and 1250 will be explained later. The gain will be recharacterized, meaning that it will change its character. It may now include some ordinary gain and some section 1231 gain. This is what we mean by depreciation recapture characterizing gain that would appear as 1231 as ordinary gain. Depreciation recapture means that we will have to pay more taxes on the gain because some of it is ordinary gain. There are two major recapture provisions: 1245 applies to personal property, while 1250 applies to real property. Both provisions apply to section 1231 assets, which means that they both can be subject to depreciation recapture, depending on the type of asset. Depreciation recapture provisions generally override all other sections of the tax code, with the exception of certain situations where gain is not recognized at all, such...