# Prop. Treas. Reg. § 1.1245-4: Exceptions and limitations.

Proposed regulation, not in force. REG-151416-06, 79 FR 65151, published 2014-11-03 <https://www.federalregister.gov/documents/2014/11/03/2014-25487/certain-distributions-treated-as-sales-or-exchanges>. Interprets 26 U.S.C. § 1245.

Par. 12. Section 1.1245-4 is amended by revising paragraphs (f)(2)(ii) and (f)(3) and Example 2 to read as follows:

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(f) * * *

(2) * * *

(ii) The portion of such potential section 1245 income which is recognized as ordinary income under paragraphs (b)(3)(i) and (b)(4)(i) of § 1.751-1.

(3) * * *

Example 2.

Assume the same facts as in Example 1 of this paragraph (f) except that the machine had been purchased by the partnership. Assume further that upon the distribution, $4,000 of gain is recognized as ordinary income under section 751(b). Under section 1245(b)(3), gain to be taken into account under section 1245(a)(1) by the partnership is limited to $4,000. Immediately after the distribution, the amount of adjustments reflected in the adjusted basis of the property is $2,000 (that is, potential section 1245 income of the partnership, $6,000, minus gain recognized under section 751(b), $4,000). Thus, if the adjusted basis of the machine in the hands of C were $10,000, the recomputed basis of the machine would be $12,000 ($10,000 plus $2,000).

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