CPA Exam Lab
Section 3: 5–15%R11

Section 1231 Assets and Depreciation Recapture

Exam Insight

Section 1231 gives taxpayers the best of both worlds — gains taxed as capital, losses deducted as ordinary — but §1245 and §1250 recapture claw some of it back. The interaction is heavily tested in both MCQs and simulations.

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What AICPA Wants You to Know

  • 1Identify Section 1231 property
  • 2Apply the §1231 best-of-both-worlds result and the 5-year lookback rule
  • 3Compute §1245 ordinary recapture on personal property
  • 4Apply §1250 / unrecaptured §1250 gain rules to real property
  • 5Order recapture before applying §1231 capital treatment