Video instructions and help with filling out and completing Which Form 4797 Losses

Instructions and Help about Which Form 4797 Losses

Here in Chapter 13 we're learning an extension of what we had really learned back in Chapter number five regarding the capital gain or loss calculation but we're not selling or disposing of capital assets here in chapter 13 what we have is section 1231 assets basically business assets that now are disposing of and we're going to have a gain or loss and maybe it will be treated as a capital gain or may be treated as an ordinary gain here under recapture rules or treat it as an ordinary loss let me kind of summarize this whole chapter in in one slide so what we're doing is selling or disposing of section 1231 assets and of course either we're gonna have a game which economically we like or there's gonna be a loss which we don't like but if there is a game the best way to treat a game is to tax it at low rates and like in Chapter five we saw long-term capital gains are taxed at lower rates like zero percent or most people would fall in the 15% bracket for long-term capital gains or if your marginal tax rate on your regular income is very high then your long-term capital gains and qualified dividends will be taxed at 20% so that's the general rule for business assets and we'll be fine 1231 assets in the next slide if you sell it at a gain long term then it's a long-term capital gain tax at lower rates but possibly we would need to maybe treat part of this game if it's recaptured by looking back we're gonna see maybe five years to see if we had deducted 1231 losses as ordinary losses and if that's the case part of this game maybe all of the game for the year is gonna be taxed as ordinary income and ordinary income is taxed at higher rates than the long-term capital gain rates or we'll see something called on recaptured section 1250 and these this type of game usually with real estate is taxed at regular rates but a maximum rate if you reach it will be 25% if your regular rate marginal rate is more than 25% then your 1250 game on recapture section 12 15 is taxed at 25 percent okay that's a maximum rate not a minimum rate like these long-term capital gain rates will also will see something called recaptured not this look-back recapture not on recaptured but recaptured section 1245 and 1250 these are code sections and this will turn the gain into ordinary income okay so lots of different types of game being taxed they're all section 1231 game now if it's a section 1231 loss a nice thing about this it's not a cap with a loss to offset only capital income but it's gonna be treated as an ordinary excuse me ordinary loss to offset all types of income okay so maybe you get the best of both worlds your capital gain treatment up here low rates and or in our lost treatment over here of sitting all the types of income unless you have some type of recapture of the gain or this on recaptured section 1253 again tax at a little bit higher rate than the ordinary rate or these this recapture or this look back treating the gain as ordinary so what is section 1231 assets well the uncommon ones would be stuff like livestock not ones that you raised to be slaughtered but maybe dairy cows for milk and you saw the cow or draft horses I let you sell now would be 1231 business assets not crops that would be probably inventory but the land and on harvested crops or here the whole coal mine or iron mine not just the extracted minerals or the standing timber and the land all of that will be 1231 assets but the most common type of 1231 assets especially here in Hawaii is real estate that's used in a trade or business that's both the land and the building and personal assets equipment computers office furniture appliances you use in your rental all of that is trade or business or production of income and those assets have to be held for more than a year if it's held for less than a year then probably these business assets when sold would result either in a ordinary income or loss not a 1231 gain or loss like we saw in the previous slide so again our basic focus is this here real estate or personal tangible assets even intangible used within a trade or business so what we would do is combine all the 1231 gains and losses together so keep in mind the gain and loss calculation was the sales price of a item and we - out the adjusted basis of that item so this is the book value equal to the cost minus the accumulated depreciation all the way up to the date of disposal so the difference here if there is a gain a section 1231 gain is taxed as a long-term capital gain or if this is a loss a section 1231 loss is treated as an ordinary loss again both best of both worlds capital gain ordinary loss but you've got to combine all the gains and losses of section toward a 31 and then the net section 1231 is either a game capital gain or ordinary loss unless we have that recapture right taxed at higher rates or the on recaps of section 12 fifty that we'll get into so here's some examples we have dawn this is a business we have 20,000 our section 1231 gain again we've just figured that this amount right here is $20,000 gain we went through all this calculation already and also in the same year we have 12,000 of section 1231 losses so that same calculation again but a different asset being sold