Ch 13 Flashcards
Chapter definitions for South-Western Federal Taxation 2015: Comprehensive, 38th Edition
Adjusted basis
The cost or other basis of property reduced by depreciation allowed or allowable and increased by capital improvements. Other special adjustments are provided in ? 1016 and the related Regulations.
Amount realized
The amount received by a taxpayer upon the sale or exchange of property. Amount realized is the sum of the cash and the fair market value of any property or services received by the taxpayer plus any related debt assumed by the buyer. Determining the amount realized is the starting point for arriving at realized gain or loss. ? 1001(b).
Boot
Cash or property of a type not included in the definition of a tax-deferred exchange. The receipt of boot causes an otherwise tax-deferred transfer to become immediately taxable to the extent of the lesser of the fair market value of the boot or the realized gain on the transfer. For example, see transfers to controlled corporations under ? 351(b) and like-kind exchanges under ? 1031(b).
Fair market value
The amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts. Reg. ?? 1.10011(a) and 20.20311(b).
Goodwill
The reputation and built-up business of a company. For accounting purposes, goodwill has no basis unless it is purchased. In the purchase of a business, goodwill generally is the difference between the purchase price and the fair market value of the assets acquired. The intangible asset goodwill can be amortized for tax purposes over a 15-year period. Reg. ? 1.167(a)3.
Holding period
The period of time during which property has been held for income tax purposes. The holding period is significant in determining whether gain or loss from the sale or exchange of a capital asset is long-term or short-term. ? 1223.
Involuntary conversion
The loss or destruction of property through theft, casualty, or condemnation. Gain realized on an involuntary conversion can, at the taxpayer’s election, be deferred for Federal income tax purposes if the owner reinvests the proceeds within a prescribed period of time in property that is similar or related in service or use. ? 1033.
Like-kind exchange
An exchange of property held for productive use in a trade or business or for investment (except inventory and stocks and bonds) for other investment or trade or business property. Unless non-like-kind property (boot) is received, the exchange is fully tax-deferred. ? 1031.
Nontaxable exchange
A transaction in which realized gains or losses are not recognized. The recognition of gain or loss is postponed (deferred) until the property received in the nontaxable exchange is subsequently disposed of in a taxable transaction. Examples are ? 1031 like-kind exchanges and ? 1033 involuntary conversions.
Personal residence
If a residence has been owned and used by the taxpayer as the principal residence for at least two years during the five-year period ending on the date of sale, up to $250,000 of realized gain is excluded from gross income. For a married couple filing a joint return, the $250,000 is increased to $500,000 if either spouse satisfies the ownership requirement and both spouses satisfy the use requirement. ? 121.
Realized gain or loss
The difference between the amount realized upon the sale or other disposition of property and the adjusted basis of the property. ? 1001.
Recognized gain or loss
The portion of realized gain or loss subject to income taxation.
Section 121 exclusion
If a residence has been owned and used by the taxpayer as the principal residence for at least two years during the five-year period ending on the date of sale, up to $250,000 of realized gain is excluded from gross income. For a married couple filing a joint return, the $250,000 is increased to $500,000 if either spouse satisfies the ownership requirement and both spouses satisfy the use requirement.
Wash sale
A loss from the sale of stock or securities that is disallowed because the taxpayer, within 30 days before or after the sale, has acquired stock or securities substantially identical to those sold. ? 1091.
