Calculating Depreciation Recapture Under IRC 1245 and 1250: Minimizing Tax Through Transaction Planning

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

Conducted on Tuesday, August 27, 2019

Recorded event now available

or call 1-800-926-7926
Course Materials

This course will provide an in-depth explanation of depreciation recapture rules, focusing on the technical calculations and planning opportunities of the recapture provisions. The speakers will explore IRC 1245 and 1250, which set out the rules for recapture based on various types of assets.

Description

Depreciation recapture is the IRS process of recharacterizing tax on a gain that had previously provided a deduction against ordinary income. Business taxpayers experience unexpected income tax liabilities by failing to account for depreciation recapture provisions when selling business assets.

Depreciation recapture under IRC Sections 1245 and 1250 applies to sales of depreciable real estate, business tangible personal property, even the sale of a business. Tax advisers need to understand the recapture rules, and to be able to advise decision makers of the tax effects of depreciation recapture on gains from asset sales in order to understand the tax consequences of the sale of capital assets.

By carefully considering the recapture rules, tax advisers can reduce the negative impact of depreciation recapture through planning. In any tax reduction scenario, the proper calculation of the recapture provisions is critical to minimizing taxes on business asset sale gains through the timing of transactions.

Listen as our expert panel provides a practical exploration into the depreciation recapture rules of Sections 1245 and 1250, providing best practices for calculating depreciation recapture as a planning tool for avoiding tax.

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Outline

  1. Depreciation recapture provisions and rules
  2. Recapture against real estate
  3. Recapture against business equipment and other assets
  4. Planning opportunities
    1. Transaction timing opportunities
    2. Transaction structure
    3. Installment sales
    4. Like-kind (Section 1031) exchanges
    5. Component allocations

Benefits

The panel will address these and other notable issues:

  • Applicable depreciation recapture rules for Sections 1245 and 1250
  • The distinction between depreciation recapture and unrecaptured Section 1250 gains
  • Preparing calculations and estimates of recapture gains recharacterized as ordinary income or Section 1250 gains
  • Planning opportunities to manage and reduce the tax arising from recapture
  • Differences in treatment between structuring a business disposition as a stock sale vs. an asset sale

Faculty

Plaks, Michael
Michael Plaks
Enrolled Agent
REI Tax Firm

Mr. Plaks has been in private practice since 1996, providing tax preparation, consulting, and IRS representation...  |  Read More

Polin, Dawn
Dawn Polin, CPA
Senior Manager
Cherry Bekaert

Ms. Polin focuses primarily on cost segregation studies, energy studies, and recently implemented tangible property...  |  Read More

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