Video instructions and help with filling out and completing Who Form 4797 Gains

Instructions and Help about Who Form 4797 Gains

Okay we're going to do example problem from Chapter eight and applications 23 on page 228 of the book so in this case we have firm OCS sold business equipment with a twenty thousand dollar initial cost basis and seven thousand three hundred fifteen accumulated depreciation in each of the following cases compute OCS recaptured ordinary income and our section 1231 gain or loss on the sale okay so our first case on number a our amount realized in our sale was ten thousand dollars our adjusted basis is going to be equal to our costs of twenty thousand minus our depreciation of seven thousand three hundred and fifteen so our twelve thousand six hundred and eighty-five is going to be our adjusted basis and I am going to copy that down because that is not going to change all the way through okay so our gain or loss in our first case is going to be a two thousand six eighty five and this is going to be a section 1231 loss okay because that is we can be ducked that loss and that's where we're at with that so our amount realized under Part B is going to be thirteen thousand so this results in a three hundred fifteen dollar gain so how is this going to get classified this is going to be a section 1231 gain or is it going to be a recapture of ordinary income well under our rules we know that we have two hundred section 1231 we deducted our appreciation at ordinary income or as an ordinary income deduction so therefore our gain is going to be our recaptured ordinary income to offset the amount that we had taken as the depreciation it's meant so that's three hundred fifteen dollars is going to be ordinary income in case see we had a gain a realized amount of 17,500 gives us a gain 4815 and again this one is going to be a game is going to be recaptured ordinary income again remember we have to go to our gain is going to be classified as an ordinary gain as ordinary income until we recapture the full amount of depreciation that we had taken which we're going to see happens in case D where we have realized a price of twenty two thousand five hundred dollars subtracted from our adjusted basis twelve six eighty five our gainer losses nine thousand eight hundred fifteen dollars well how we're going to handle that is our first part is going to be our recaptured ordinary income which is going to be the amount of depreciation we've taken so seven thousand three hundred fifteen of that nine thousand eight hundred fifteen dollars is going to be ordinary income and the balance is going to be our section 1231 gain which is kid tax at a lower rate so twelve point five hundred dollars is going to be our section 1231 gain so that's how we handle the recapture of income under our section 1231 sales