Non-recaptured 1231 Losses & Death

Technical topics regarding tax preparation.
#21
Posts:
5698
Joined:
21-Apr-2014 7:21am
Location:
The Land
I guess under NoCalCPA85's approach, seems A is B's predecessor, as B got the property in a tax-deferred exchange from A, who had those big huge 1231 losses, so B now has ordinary income from the gain on the sale. Especially since no one died.


Indeed. It seems NoCal’s approach involves the creation of a multi-faceted tax law. It starts with the idea that natural individuals can be predecessor and successors of other natural individuals. Next step is that we have a 1231 loss by Party #1. Next, if Party #2 acquires property from Party #1, the Natural Individual Predecessor/Successor Rules kick in. This renders Party #1 and Party #2 a predecessor and a successor. This is despite the fact that Party #1 has not died. (Perhaps NoCal’s formulation of this tax law must require a death, I’m not sure. If so, that would be completely made up). Following along now, if Party #2 sells the property he acquired from Party #1, at a gain, then the recapture rule would apply, rendering Party #2’s gain ordinary. This assumes Party #1 still has non-recaptured 1231 losses at the time of Party #2’s sale. But we’d need an ordering rule here, just in case Party #1 also has a 1231 gain in the same year as Party #2. That is, which party has to recapture their gain as ordinary? (Note: there could be other parties that acquired property from Party #1 as well).

I’m not sure if NoCal’s tax law requires related parties or not. If not, see above. If so, that related party rule would have to be spelled out somewhere in the law. All we know thus far is that a husband and wife would be captured by the NoCal recapture law.

We’ll also need to know what type of acquisitions would potentially trigger the recapture. So far, a death of a joint tenant would taint a future sale and trigger the recapture. A 1031 exchange would do the same, as per Post #20. What about an outright purchase? What about a gift?
 

#22
Posts:
826
Joined:
10-Jul-2022 9:41am
Location:
Northern California
It's not "my approach" or "my tax law." I was suggesting that the IRS might argue this because of the reference to "predecessor taxpayer" in the Conference Committee Report.

But after reviewing Reg. 1.1252-2(b)(2) (which I referred to in #9 above), I don’t think that this is a viable argument.
 

#23
Posts:
5698
Joined:
21-Apr-2014 7:21am
Location:
The Land
It's not "my approach" or "my tax law."


LOL. We’re just giving you a hard time.
 

Previous

Return to Taxation



Who is online

Users browsing this forum: AlexCPA, Google Adsense [Bot] and 37 guests