Section 3: 5–15%R11

Section 1231 Assets and Depreciation Recapture

Exam insight

Section 1231 gives taxpayers a one-sided deal (gains taxed as capital, losses deducted as ordinary), but §1245 and §1250 recapture claw some of it back. How they work together comes up in both MCQs and simulations.

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

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Gain Character CallCompute the gain, then character it: capital, ordinary, or section 1231, with recapture peeling off the ordinary slice first.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.