Fundamentals of Capital Gains: Identifying Section 1231, 1245 and 1250 Gains, 0% Bracket and Form 4797

Description

Capital gains taxation is one of the more complex, most often litigated areas of taxation. Most taxpayers want to take advantage of the lowest possible capital gains rate. However, capital gains tax rates are graduated, similar to regular tax rates. Practitioners and taxpayers are sometimes pleasantly surprised, or shocked, to discover they can take advantage of a 0% capital gains tax rate via careful planning or luck. In 2019, married taxpayers filing joint returns can avoid capital gains when taxable income is under $78,750.

Electing to tax-qualified dividends and long-term capital gains at ordinary rates can free-up investment interest carryforwards. Making this election often results in substantial current tax savings for taxpayers, but when should the election be made, and should the deduction be maximized?

Perhaps the most perplexing area of capital gains taxation is the categorical taxation of the sales under Sections 1250, 1245, and 1231. Separating a sale appropriately can be a daunting task. Planning for 1245 and 1250 recapture, categorizing taxable gains appropriately, and being mindful of the 1231 five-year lookback are all necessary steps to calculate the tax effect of gains on the disposition of assets.

Listen as our panel of experts reviews the most complex areas of capital gains tax, including taking advantage of the 0% bracket, calculating recapture, the investment interest election, and Form 4797 reporting of these transactions.