Based on the information in this string:
- Your true overall gain is $2,403 ($4,690 less $2,287)
- Of this overall gain, $1,818 is reported as ordinary income (Section 751)
- This Section 751 is a recharacterization of the overall gain as a result of previously taking depreciation. As a result, the IRS wants the taxpayer to pick up ordinary income to offset any prior deductions from depreciation. This Section 751 gain is not added to the cost basis (tax basis); only a recharacterization.
- So once you have your overall gain of $2,403, subtract the Section 751 component of $1,818, leaves you the capital gain component of $585.
- That is why you have two components
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
