Chapter 13 Flashcards
_______ gain or loss is the difference between the amount realized from the sale or other dispostiion of property and the property’s adjusted basis on the date of dispostion.
Realized
If the amount realized exceeds the property’s adjusted basis, the result is a ________
Realized gain
If the property’s adjusted basis exceeds the amount realized, the result is a
Realized Loss
The _______ from a sale or other dispostion of property is the sum of any money received plus the fair market value of other property received
Realized amount
*the amount realized also includes any real property taxes treated as imposed on the seller that are actually paid by the buyer
** also includes any liability on the property disposed of, such as a mortgage debt if the buyer assumes the mortgage or the property is sold subject to the mortgage
The _______ of property received in a sale or other disposition has been defined by the courts as the price at which property will change hands between a willing seller and a willing buyer neither is compelled to sell or buy.
Fair Market Value
In calculating the ______, selling expenses such as advertising, commissions, and legal fees relating to the dispostion are deducted.
amount realized.
The _____ of property disposed of is the property’s original basis adjusted to the date of disposition
Adjusted basis
______ is the cost or other basis of the property on the date the property is acquired by the taxpayer.
Original Basis
_____ increases and ____ decreases the original basis so that on the date of disposition the adjusted basis refelcts the unrecovered cost or other basis of the property.
Capital additions
recoveries of capital
____ include the cost of capital improvements and betterments made to the property by the taxpayer
Capital addiitions
The following are examples of ______:
- depreciation and cost recovery allowances
- casualties adn thefts
- certain corporate distributions
- amortizable bond premium
- easements
Capital recoveries
The amount of depreciation that is subtracted from the original basis is the greater of the ____ or _____ depreciation calculated on an annual basis
allowed
allowable
A _____ or ____ may result in the reduction of the adjusted basis of property
Casualty
theft
A corporate distribution to a shareholder that is not taxable is treated as a_____, and it reduces the basis of the shareholder’s stock in the corporation
return of capital
The basis in a bond purchased at a premium is reduced by the _____ portion of the bond premium
amortizable
A _____ is the legal right to use another’s land for a special purpose
easement
______ is the amount of the realized gain that is included in the taxpayer’s gross income.
Recognized Gain
A _____ is the amount of a realized loss that is deductible for tax purposes
Recognized Loss
Under the doctrine, as a general rule, a taxpayer is entitiled to ______ or ____ of property aquired and is not taxed on that amount
recover the cost
other original basis
A _____ of property is an exceptino to the general rule for determining basis. It may result when an employer transfers property to an employee at less than the property’s fair market value or when a corporation transfers property to a shareholder at less than the property’s fair market value.
bargain purchase
When a taxpayer acquires multiple assets in a lump-sum purchase, the total cost must be _____ among the individual assets
allocated
If the dividend is _____ on ____ the cost of the original common shares is allocated to the total shares owned after the dividend
Common on common
If the nontaxable stock dividend is ____ on _____, the cost of the original common shares is allocated between the common and preferred shares on the basis of their relative fair market values on the fate of distribution
preferred stock on common
The holding period for a nontaxable stock dividend, whether received in the form of common stock or preferred stock, includes ______
the holding period of the original shares.
The basis of property acquired from a decendent is generally the ____
propery’s fair market value at the date of death
The property’s basis is the fair market value ______ after the death if the executor or administator of the estate elects the alternate valuatoin fate for estate purposes
6 months
* called the alternate valuation amount
In the situation of deathbed gifts, in order for the step-up in basis to qualify the period between the donee’s death and the date of the gift must be _______
at least one year
The holding period of property acquired from a decedent is deemed to be ____
Long term
Section 267 provides that realized losses from sales or exchanges or property, directly or indirectly, between certain related parties are ______
Not recognized
This loss disallowance provision applies to several types of related-party transactions. the most common involve
- members of a family
- individual and a corporation in which the individual owns, directly or indirectly, more than 50% in value of the corporation’s outstanding stock.
If income-producing or business property is transferred to a related taxpayer and a loss is disallowed, the basis of the property to the recipient is the ________
property’s cost to the transferee
The buyer’s _______ includes only the period of time he or she has held the property
holding period
If a taxpayer sells or exchanges stock or securities and within 30 days before or after the date of the sale or exchange acquires substaintially identical stock or securities, any loss realized from the sale or exchange is ________ because the transaction is a ______
not recognized
wash sale
Holding period of new stock or securities begins ______ & ________
on the date of acquisition of the old stock or securities
includes the holding period of the orignal
Section 1031 provides for nontaxable exchange treatment if the followin grequirements are satisfied:
- the form of the transaction is an exchange
- both the property transferred and the property received are held either for productive use in a trade of business or for investment
- The property is like-kind property
- certain time requirements must be met
**can not be personal property
______ includes business for business, business for investment, investment for business, or investment property.
like-kind exchanges
Property held for productive use in a business is of a like class only if the exchanged property is withing the ______ or _______
same general business asset class
same product class
The transaction must involve a ______ of property to qualify as a like-kind exchange
direct exchange
If the exchange is a delayed exchange, there are time limits on its completion. In a delayed like-kind exchange, one party fails to take immediate title to the new property because it has not yet been identified. The code provides that the delayed swap will qualify as a like-kind exchange if these requirements are satisfied:
- the new property must be identified withing 45 days of the date when the old property was transferred (identification period)
- the new property must be received by the earlier of the following (exchange period)
- within 180 days of the date when the old property was transferred
- the due date (including extension) for the tax return covering the year of the transfer
*** Must meet both identification period & Exchange period
Property that is no like-kind property, including cash, is referred to as _____
boot
The receipt of boot will trigger recognition of gain if there is a _____
Realized gain
**the amount of the recognized gain is the lesser of the boot received or the realized gain
Section 1033 provides that a taxpayer who suffers an involuntary conversion of property may ______
postpone recognition of gain realized from the conversion
An _______ results from the destruction, theft, seizure, requisition or condemnation, or sale or exchange under threat or imminence of requisition or condemnation of the taxpayer’s property.
involuntary conversion
If either of these requirements are satisfied, the nonrecognition provision of Section 1033 applies to the severence damages:
- The severence damages are used to restore the usability of the remaining property
- the usefulness of the remaning property is destroyed by the condemnation, and the property is solf and replaced at a cost equal to or exceeding the sum of the condemnation award, severance damages, and sales proceeds.
With regards to replacement the taxpayer normally has a ______ after the close of the taxable year in which gain is realized from an involuntary conversion to replace property.
2 year period
** This rule affords as much as 3 years from the date of realization of gain to replace the property if the realization of gain took place on the first day of the taxable year. If the involuntary conversion involved the condemnation of real property used in a trade or business or held for investments, a 3 year period is substituted for the normal 2 year period.
In regards to a involuntary conversion of a personal residence, if the conversion is a condemnation, the realized loss is _____.
not recognized
**loss from the condemnation of a personal use assets is never recognized.
When dealing with involuntary conversion of a personal residence if the conversion is a casualty, theft, or condemnation, the gain may be ____
postponed under section 1033 or excluded under section 121
Under Section 121, a Taxpayer can exclude up to _____
$250,000
*$500,000 is file jointly
To qualify for the Section 121 exclusion treatment, at the date of the sale, the residence must have been owned and used by the taxpayer for at least _____ years during the ____ year period ending on the date of the sale
2
5
Excpetions to the 2 year ownership rule
- Change in place of employment
- no long work at the same location, not always a new job… must be at least 50 miles farther than the old job from home
- health
- to the extent provided in the regulations, other unforseen circumstances
The location of the taxpayer’s new employment must be at least __ miles further from the old residence than the old residence was from the old job when you have a change in place of employment.
50
For the health exception to apply, health must be the primary reason for the _____ or _____ exchange of the residence.
sale
exchange
A _____ applies if there is a physician’s recommendation for a change of residence
(1) to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury, or
(2) to obtain or provide medical or personal care for an individual suffering from a disease, illness, or injury.
safe harbor
The amount of the § 121 exclusion on the sale of a principal residence is $____. If the realized gain does not exceed that amount, there is no recognized gain.
$250,000
The _____ is the selling price less the selling expenses, which include items such as the cost of advertising the property for sale, real estate broker commissions, legal fees in connection with the sale, and loan placement fees paid by the taxpayer as a condition of arranging financing for the buyer.
amount realized
If a married couple files a joint return, the amount is increased to _____ if the following requirements are satisfied:
- Either spouse meets the at-least-two years ____ requirement.
- Both spouses meet the at-least-two-years ____ requirement.
- Neither spouse is ineligible for the § 121 exclusion on the sale of the current prinicpal residence because of the sale of another principal residence within the prior __ years.
- Must be your ____ residence
$500,000
- ownership
- use
- 2
- personal
Starting in 2008, a surviving spouse can continue to use the $500,000 exclusion amount on the sale of a personal residence for the next _ years following the year of the deceased spouse’s death.
If the sale occurs in the year of death, however, a ___ return must be filed by the surviving spouse.
If each spouse owns a qualified principal residence, each spouse can ____ qualify for the $250,000 exclusion on the sale of his or her own residence even if the couple files a joint return.
2
joint
separately
A ____ §121 exclusion treatment may be available when not all of the statutory requirements are satisfied.
Calculate using formula:
partial
months you qualified **/ **24 X gain exclusion you would qualify for (250,000 or 500,000)
Formula for reduction in exclusion for prior use as a vacation home (vacation home converted into personal residence):
# years used as a personal residence X realized gain
years owned
Four options when deciding between §121,(exclusion of gain), § 1033 (postponement of gain provision), or using both:
- Don’t use either
- Use 121
- Use 1033
- Use 121 to exclude gain, which reduced amount of proceeds required to reinvest, then use 1033 and reinvest the remaining amount
A realized gain or loss is not recognized upon the sale or other disposition of property in certain cases:
Case involving ______
Losses realized upon the _____, _____, or _____ of personal use assets (as opposed to business or income-producing property) and gains realized upon the sale of residence.
In addition, realized losses from the sale or exchange of business or income-producing property between certain _____ _____ are not recognized.
nontaxable exchanges
sale, exchange, or condemnation
related parties
A realized loss from the sale, exchange, or condemnation of personal use assets is ____ ____ for tax purposes.
An exception exists for ____ or ____ losses from personal use assets.
In contrast, any ____ realized from the sale or other disposition of personal use assets is generally, fully taxable.
not recognized
casualty or theft
gain
Both the decedent’s share and the survivors’ share of _____ _____ have a basis equal to the fair market value on the date of the decendent’s death.
Community property
In a _____ _____ state, only one-hald of jointly held property of spouses is included in the estate.
Survivor _____
+ Decendent ____\_
Survivor new basis
common law
1/2 original cost
1/2 FMV
The tax law pevents conversion of personal use asset that has declined in value to business use by specifying that the _____ _____ for loss on personal use assets converted to business or income producing use in the _____ of the property’s adjusted basis or the fair market value on the date of conversion.
The _____ _____ for converted property is the property’s adjusted basis on the date of conversion.
The basis for loss is also the basis for _____ the converted property.
original basis
lower
gain basis
depreciating
The _____ of boot does not result in recognition if there is realized loss.
The _____ of boot usually does not trigger recognition. If the boot given is cash, no realized gain or loss is recognized.
If, however, the boot given is appreciated or depreciated property, gain or loss is recognized to the extent of the difference between the _____ _____ and the ____ ____ ____ of the boot.
Appreciated property is defined as property whose adjusted basis is not equal to the ______.
receipt
giving
adjusted basis and the fair market value
fair market value
If the conversion is a ____, the realized loss is not recognized.
If the conversion is a ____, the loss is recognized subject to limitations.
Condemnation
Casualty
What are the three exceptions to the two-year ownership and use requirement for § 121 (Sale of a resdience)?
- Change in place of employment
- Health
- To the extent provided in the Regulations, other unforseen circumstances
