Gains and Losses from Property Dispositions

Question 1

Realized Gain

Answer 1

When a taxpayer has an amount realized in excess of the taxpayer’s adjusted basis in the transferred property, there is a realized gain

Question 2

Realized Loss

Answer 2

When a taxpayer has an amount realized that is less than the taxpayer’s adjusted basis in the transferred property, there is a realized loss

Question 3

Calculating Amount Realized

and Adjusted Basis

Answer 3

Sum of cash received + fair market value of property received (camel and a goat) + debt relief (like selling your property with the mtg)

Original basis + cost of improvements - depreciation allowed = adjusted basis

Question 4

Original Basis

Answer 4

Generaly the cost incurred to get the property

Property aquired as compensation: use fair market value at time of receipt

Property acquired by fist: use donor’s basis

Gifts of loss property (donor’s basis exceeds fair market value): use fair market value at time of gift

Property acquired from decedent: fair market value at date of death

Question 5

Is the realized gain deductible?

Answer 5

(1) Is the gain recognized (included in gross income)?

• all are, except:
  
  • no recognized gain or loss from like-kind exchange of real property (trade blackacre for whiteacre)
  • no recognized gain form involuntary conversion of property as long as taxpayer uses teh conversion proceeds to purchase replacement property within a short period of time
  • no recognized gain on transfer to spouse or to a former spouse when transfer is incident to divorce

(2) What is the character of the gain?

• There is a preferential tax rate for long-term capital gains– either 0%, 15%, 20%
• Long term capital gain:
  
  • gain from saile or exchange;
  • of a capital asset (not related to business or trade and not a self-created intangible)
  • held for more than one year (includes tacking rules)

Question 6

Is the realized loss deductible?

Answer 6

(1) Is the loss recognized?

• YES: business losses (ATL), investiment losses (ATL if related to property), casualty and theft losses (itemized)
• NO: like-kind exchange of real roperty, transfer to spouse or former spouse incident to divorce

(2) What is the character of the loss?

• Oonly deductible to the extent of capital gains plus $3,000
• Any net capital loss carries over to the next taxible year