When Form 4797 Properties 2024-2025

In this video, we're going to go over Section 1231 property. This is just a quick explanation of what it is. Section 1231 property, or 1231 assets, is a tax term that refers to depreciable business property that has been held for over one year. The types of properties included in Section 1231 are machinery, land, cattle, timber, buildings, natural resources, crops, and leaseholds that are at least a year old. So, what does Section 1231 do? It allows businesses to get the best of both worlds, so to speak, in regards to tax treatment. If their property falls within that section, it allows taxpayers to have capital gains treatment if they realize a gain on a Section 1231 property. At the same time, it allows the taxpayer to treat any loss on such property as an ordinary loss. Another benefit of Section 1231 treatment is that it allows taxpayers to enjoy tax-favored treatment for 1231 property gains. These are gains that are greater than the losses on these properties. Basically, this means that an asset could be sold for a value greater than its basis and be taxed at a capital gains rate, which is lower than the ordinary income rate. However, if the 1231 property results in a loss, then the taxpayer can treat it as an ordinary loss. This loss can actually reduce the taxpayer's taxable income. So, as I mentioned earlier, it gives you the best of both worlds. It allows a favorable tax treatment on 1231 property and also avoids the negative implications of capital loss treatment. Ordinary losses are 100% deductible, while capital losses are only subject to an annual deduction limitation of $3,000. If capital losses exceed capital gains by more than $3,000 in any given year, only a maximum of $3,000 can be deducted. The...