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CCH Federal Taxation Basic Principles Chapter 11 Property Transactions: Nonrecognition of Gains and ... - page 66 / 66

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CCH Federal Taxation Basic Principles

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Code Sec. 1245 and 1250 Depreciation Recapture. The full amount of any depreciation recapture must be recognized in the year of sale, even if no payments are received in that year.  [Code Sec. 453(i)]  The remaining gain is Code Sec. 1231 gain or long-term capital gain.

Contract Price.  The contract price should NOT include seller’s debt relief (i.e., seller debt assumed by buyer).

Post-May 6, 1997 Installments on Pre-May 7, 1997 Contract.  If Code Sec. 1231 property (or capital gain property) is sold under an installment sales contract entered into prior to May 7, 1997 installments received after May 6, 1997 are the lower rate (i.e., 10%, 15%, 20%, or 25% rates) under the new law.  Of course, if the property consists of “collectibles, then the maximum capital gain rate is 28% under current law.

Installment Method—Solution Step Four

Chapter 11, Exhibit 25b

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