Property sold to a related party purchaser that is depreciable by the purchaser may cause the seller to have ordinary gain.

Question

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When a depreciable property is sold to a related party purchaser, the transaction is subject to special rules under Section 1239 of the Internal Revenue Code. If the sale results in a gain for the seller, the gain will be treated as ordinary income instead of capital gain. Therefore, it is possible for the seller to have ordinary gain in this situation.

Property Sold to a Related Party Purchaser That Is Depreciable