For other videos on IRS Form 4797:
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Am I a Real Estate Professional:    • SAVE TAXES with Real Estate!!!  Quali...  
Section 1250 Depreciation Recapture:    • Real Estate Depreciation Recapture  ...  
Section 1250 Ordinary Income Treatment:    • How to File IRS Form 4797  Section 1...  
Section 1250 & 1231 Gains and Losses:    • Understanding Section 1250 Gains and ...  
Sale of Business Vehicles:    • How to File IRS Form 4797 Sale of Bus...  
Section 475 MTM Election & Form 4797:    • How to Complete IRS Form 4797 for Sec...  

The sale of real estate (Section 1250 property) that is used in a trade or business and held for more than one year, can qualify for certain preferential tax treatment under Section 1231. Gains are treated as longterm capital gains, while losses are treated as ordinary losses.

However, if you sell the property at a loss and claim ordinary loss treatment in a given tax year, you must track and carryforward the amount of ordinary losses as nonrecaptured Section 1231 losses. If in subsequent tax years you generate Section 1231 gains, you must recapture as ordinary income the amount of nonrecaptured Section 1231 losses.

This loss carryforward rule in Section 1231(c)(1) prevents taxpayers from purposefully manipulating the timing of sales to benefit from ordinary loss in one year and long term capital gains in a subsequent tax year.

For more examples of Rental Real Estate sales and Section 1231 rules, see the following video:    • How to Complete IRS Form 4797 For the...  

For a video on unrecaptured Section 1250 gains, see here:    • Video  

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