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Section 1231 of the US tax code provides tax breaks for gains and losses on certain types of property used by businesses, such as machinery, buildings, and livestock. However, the law is complex and it is advisable to consult a tax advisor to ensure proper filing. Property not covered by Section 1231 may be eligible for different tax benefits.
Section 1231 is a part of the United States tax code that covers certain types of property used by businesses and how they can be handled for tax purposes. Under Section 1231, gains and losses on property classified as 1231 property are specially treated, providing businesses with access to tax breaks. However, this section of tax law is quite complex and it is advisable to use a tax advisor to determine what property a qualifying business owns and to ensure that taxes are filed correctly.
This addition to the tax code was originally made during World War II to provide some benefits to businesses struggling in the wartime economy. Later it was adjusted and expanded. Under Section 1231, property sold, traded, or subject to involuntary conversion, such as loss or destruction, may be counted in a special way on tax returns. Gains can be treated as capital gains, qualifying individuals for a reduced tax rate, while losses are treated as ordinary losses for deduction purposes.
There are some caveats involved. If a taxpayer has been claiming depreciation on Section 1231 property to offset the tax liability, that property is subject to depreciation recovery. The profit from the sale of the property is treated as an ordinary profit. The property must also be held for at least one year. Because the tax code changes periodically, it is important to ensure that tax documentation for the applicable year is used and that 1231 property is properly accounted for to avoid situations where taxes are misreported and need to be amended to make corrections.
Examples of property that qualifies under Section 1231 include machinery, buildings, land, leases, and livestock. If people are unsure whether or not a business asset falls under Section 1231, they can consult a tax specialist for information. Tax specialists may also have additional advice to help businesses reduce tax liability while staying within the tax code so they don’t break the law or draw the attention of IRS auditors.
Property that is not within the scope of Section 1231 may be eligible for different business tax benefits. Detailed lists of business tax benefits are often available through chambers of commerce and professional organizations. The IRS also publishes brochures and other materials to help taxpayers and businesses file their taxes accurately and completely, including documentation on how to access business tax benefits.
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