Chapter 8

Question 1

Amount Realized

Answer 1

Tax Sales Price (cash, non-cash asset, debt relief)

Question 2

Realized gain/loss =

Answer 2

Amount realized - adjusted tax basis

Question 3

Seller-Financed Sales (N/R)

Answer 3

Only pay tax in cash received (only for gains)

Question 4

Gross Profit Percentage (GPP)

Answer 4

Realized gain / amount realized

Question 5

Seller-Financed Sales:
Recognized gain

Answer 5

Cash received by year end
X
GPP

Question 6

SFS: Note Basis

Answer 6

Cash/note outstanding
X
(1-GPP)

Question 7

What if the company sells the note/pledge as collateral?

Answer 7

Any deferred gain is immediately recognized.

Deferred gain X GPP

Question 8

Related Party Losses

Answer 8

Disallowed.
The disallowed loss may be used in a future unrelated party transaction with the same asset up to the amount of the gain.

Question 9

Tax Character

Answer 9

Ordinary gains/losses: taken without limit
Capital gains/losses: only deducted to the extent of capital gains
- can carry back 3yrs or forward 5yrs

Question 10

Section 1231

Answer 10

Real or depreciable property used in a trade or business (including real estate and intangible assets subject to amortization)

Recapture rules only apply to gains and always make them ordinary.

Question 11

1231 owned one year or less

Answer 11

Gain/loss is ordinary

Question 12

Net 1231 gain/loss

Answer 12

Gain —> capital
Loss —> ordinary

Question 13

Recapture Rules: Personalty (1245)

Answer 13

A/D must be recaptured as ordinary, but capped at the amount of the gain.

Question 14

Recapture Rules: “Old” Realty (1250)

Answer 14

(Pre 1987)
The amount that accelerated depreciation exceeds S/L is recaptured as ordinary

Question 15

Recapture Rules: Corporation Realty (291)

Answer 15

Pretend it’s personalty (1245), then subtract the 1250 gain. Multiply answer by 20% = ordinary gain (291)

(1245 - 1250) X .20 = (291)

Question 16

5 year look back

Answer 16

Any unrecaptured losses from the previous 5 years must be recaptured as ordinary income.