# Example of Net Section 1231 Computation

In tax year 2013 you sell two pieces of equipment (section 1245 property). We'll call them: Property A and Property B. You make a profit on Property A because it is a unique piece of equipment, and a loss on Property B.

Property A:

• Selling price: \$20,000
• Basis before depreciation adjustment: \$10,000
• Depreciation claimed through current year: \$2,000
• Adjusted basis after subtracting depreciation: \$8,000

Property B:

• Selling price: \$3,000
• Basis before depreciation adjustment: \$5,000
• Depreciation claimed through current year: \$1,000
• Adjusted basis after subtracting depreciation: \$4,000

Net section 1231 gains and losses for the previous five years:

• 2008: (\$1,500)
• 2009: \$500
• 2010: (\$3.000)
• 2011: -0-
• 2012: -0-
Section 1231 Computation
Property A
Selling Price   \$20,000
Basis before depreciation \$10,000
Less: Depreciation 2,000
Gain on Property A     \$12,000

Property B
Selling Price   \$3,000
Basis before depreciation \$5,000
Less: Depreciation 1,000
Loss on Property B     (1,000)

Net Gain on Property A and B     \$11,000
Less: Recaptured depreciation     (2,000)
Section 1231 gain
The part of the gain that exceeds recaptured depreciation.
\$9,000
How to Report the \$11,000 Gain
Recaptured depreciation for Property A:
Report as Ordinary income in Part II of Form 4797

Note: Property B had a loss, therefore, no recapture.
\$2,000
Recaptured Net section 1231 losses for the previous five years:
Report as Ordinary income in Part II of Form 4797
2008 (\$1,500), 2009: \$500, 2010 (\$3,000):
4,000
Portion of Gain Reported as Ordinary Income
Part II of Form 4797
\$6,000
Portion of section 1231 gain Gain Reported as Long-Term Capital Gain (\$9,000 minus \$4,000)

Carry the gain from line 9 of Form 4797 to Schedule D as a long-term capital gain .
\$5,000

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