Sections 1245 and 1250 Depreciation Recapture: Minimizing Tax Through Transaction Planning, New OBBBA Considerations

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, and even the sale of a business. 

The passage of OBBBA requires new planning analyses. Qualified production Property (QPP) under new Section 168(n) could be subject to recapture and taxed as ordinary income if the QPP ceases to be qualified within 10 years. At the same time, opportunity zone investments could escape recapture if qualified and the 10-year holding period is met. 

Tax advisers need to understand the recapture rules and advise decision makers on the tax effects of depreciation recapture on gains from asset sales to understand the tax consequences and minimize taxes on the sale of capital assets.

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, including new determinations after OBBBA.

I. Depreciation recapture provisions and rules

II. Recapture against real estate

III. Recapture against business equipment and other assets

IV. New considerations after the OBBBA

V. Planning opportunities

A. Opportunity zones

B. Transaction timing opportunities

C. Transaction structure

D. Installment sales

E. Like-kind (Section 1031) exchanges

F. Component allocations

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 after OBBBA
• Differences in treatment between structuring a business disposition as a stock sale vs. an asset sale

Learning Objectives

After completing this course, you will be able to:

• Identify the applicable depreciation recapture rules for Sections 1245 and 1250
• Decide how to prepare calculations and estimates of recapture gains recharacterized as ordinary income
• Determine new planning considerations for recapture after OBBBA
• Establish planning opportunities to reduce the tax arising from recapture and distinguish between the differences in treatment between structuring a business disposition as a stock sale vs. an asset sale

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

  
  

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).