Disposition/Sale of Property Flashcards
Related parties
Members of taxpayer’s family, which includes only brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.)
A partnership or corporation with more than 50% directly or indirectly owned by the taxpayer
A tax-exempt charitable or educational organization controlled by taxpayer or family member
Related party sale
Cannot deduct a loss on the sale or trade of property, other than a distribution in complete liquidation of a corporation if the transaction is directly or indirectly between the taxpayer and a related party.
Recognize gain on later sale only on amount that exceeds loss previously disallowed to a related party.
A taxpayer that sells property at a loss cannot recognize a loss previously disallowed to a related party.
Installment sale
- Not used to report a loss.
- Payments consists of three parts—interest, return of basis, and gain on the sale.
- Gross profit = selling price – adjusted basis. Reduce by any gain that the taxpayer excludes from income.
- Gross profit percentage = gross profit ÷ contract price.
- Installment sale income = gross profit percentage × (total payments – interest).
Nonbusiness bad debts
Deductible as short-term capital losses in the year the debt becomes totally worthless. The amount must have already been included in income or loaned out in cash. A taxpayer can amend a prior year return to claim a refund based on a bad debt or worthless security within 7 years after the due date of the return for the tax year in which the debt or security became worthless.
Worthless securities
Securities that become completely worthless (including abandoned) are treated as if sold on last day of year. To abandon a security, the taxpayer must permanently surrender and relinquish all rights in the security and receive no consideration in exchange for it.
