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Happy to Help! Understanding the Ins and Outs of Section 1231 Property

May 16, 2023 (3 min read)

Property subject to depreciation and real property used in a trade or business is commonly referred to as I.R.C. Section 1231 property. Once you have concluded that property is I.R.C. Section 1231 property, your work is not done. This practice note assists with your next steps: determining the advantages of such treatment, the installment sales of depreciable property that involve unrecaptured I.R.C. Section 1231 gain, and the interplay between I.R.C. Section 1231 and 1234A, which potentially treats certain lease terminations as capital gain income.

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Related Content

  • Real Property 1231 Exchanges
    Review how, while sales or exchanges of Section 1231 property usually result in a taxable event, Section 1031 provides that no gain or loss will be recognized when real property held for productive use in trade or business, or for investment, is exchanged for like-kind real property, which will also be held for productive use in trade or business, or for investment. 
  • 1031 Like-Kind Exchange Resource Kit
    Discover more about Section 1031 which allows an owner of real estate (investor) to defer payment of the federal capital gains tax on the sale of real property held for business use or for an investment if certain criteria are met. This resource kit is loaded with resources that provide guidance on drafting and negotiating documents for and understanding the requirements of a Section 1031 exchange.

Practical Guidance Updates 
Featuring the latest updates from your Practical Guidance account.   

  •  Tax Key Legal Developments Tracker (Federal)—keep up to date with key legal developments!
    • Business Entities. IRS provides the domestic asset/liability percentages and domestic investment yields needed by foreign life insurance companies and foreign property and liability insurance companies to compute their minimum effectively connected net investment income under I.R.C. Sec. 842(b)for taxable years beginning after December 31, 2021. Rev. Proc. 2023-21.
    • Employment.  IRS Chief Counsel’s office memorandum addresses medical and dependent care expense substantiation requirements for a health or dependent care FSA and the tax consequences that may result from self-certification procedures (instead of third-party substantiation). IRS, Office of Chief Counsel, 202317020
    • International Taxes. Treasury Department proposes regulations under Section 367(d) for certain situations when U.S. corporations bring home intangible property that they'd previously transferred to a foreign company. 88 Fed. Reg. 27,819 (May 3, 2023).

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