Sales of Business Property - K1 Effect (Please help!)

[LorianneH]

Hi,

I will try to make this as clear as possible. I am not sure if I am calculating this incorrectly, if ATX is calculating this incorrectly, or both. I just know that ATX is really making me second guess myself on this one.

Information:

In a partnership, a 1250 asset is sold for $500,000.

The cost or other basis plus expense of sale is $250,000

The depreciation deducted from the acquisition through the sale of the asset is $80,000

Now, what I need to know is which amounts flow to the K-1s and in which boxes. Depending on how I enter this into the 'Input' field of Form 4797, ATX is putting a portion to box 9c - Unrecaptured section 1250 gain and a portion to box 10 - Net section 1231 gain. If I enter it differently, the entire gain will be input into box 10 as a Net section 1231 gain.

Can anyone please help me to understand this better? Please let me know if I have not been clear enough or need to provide anymore information.

Thanks!

Forever indebted to anyone who can help,

Lorianne

[OldJack]

For a partnership the tax effect is determined on the partner's 1040. It looks like the reporting of box 9c is the correct results as a portion of the gain my be recaptured as ordinary income if there have been previous 5 yr ordinary losses on individuals form 1040-4797 line 8. This is telling the individual to look at his previous 5 years form 4797 and prepare his current form 4797 accordingly. However, make sure you have filled out the depreciation correct on 4797 page 2 as recent 1250 property normally would not have to recapture depreciation.

[Maribeth]

Your selling price is $500,000. Your basis is your cost plus selling expenses less accumulated depreciation. That basis is $250,000 so your gain is $250,000.

Of that gain, $80,000 is attributable to prior depreciation taken and $170,000 is attributable to the increase in FMV of the property.

The $80,000 is considered to be Unrecaptured §1250 gain and can be subjected to a different capital gain rate than the remaining $170,000 gain.

So, yes, you should have numbers in two different places on the K-1.

[LorianneH]

Thank you very much!

Do you think it would make sense at all for anything to be reported as a net section 1231 gain in box 10? No matter how I input it, a portion always carries to box 10. I cannot figure out how to get it all to report it in box 9c.

[LorianneH]

Your selling price is $500,000. Your basis is your cost plus selling expenses less accumulated depreciation. That basis is $250,000 so your gain is $250,000.

Of that gain, $80,000 is attributable to prior depreciation taken and $170,000 is attributable to the increase in FMV of the property.

The $80,000 is considered to be Unrecaptured §1250 gain and can be subjected to a different capital gain rate than the remaining $170,000 gain.

So, yes, you should have numbers in two different places on the K-1.

Maribeth, thank you!

Are boxes 9c and box 10 the appropriate places for the amounts to carry?

[Maribeth]

Yes, they are approrpriate. When you sell business property for more than you purchased it for, you will have capital gain due to the increase in FMV of the property. When you sell business property for less than your purchased it for, you will have gain to the extent of depreciation. if §1245 property, this gain will be ordinary income. If §1250 property, this gain will be unrecaptured §1250 gain.

What I can't remember is if the full gain goes in box 10, or if it is the gain net of the unrecaptured §1250 gain. Sorry, you will have to look at instructions for that, my mind is blank.