Gains and Losses from Property Dispositions

Question 1

Realized Gain

Answer 1

When taxpayer has an amount realized IN EXCESS of taxpayer’s adjusted basis in the transferred property

Question 2

Realized Loss

Answer 2

When taxpayer has an amount realized that is LESS THAN of taxpayer’s adjusted basis in the transferred property

Question 3

Amount Realized

Answer 3

Cash Received + FMV of Property Received + Debt Relief = Amount Realized

Question 4

Adjusted Basis

Answer 4

Original Basis + Cost of Improvements - Depreciation Allowed = Adjusted Basis

Question 5

Original Basis

Answer 5

Generally, COST incurred to acquire the property

Question 6

Realized Gain: Is this Gain RECOGNIZED (i.e., included in gross income)?

Answer 6

All realized gains are recognized except as provided elsewhere

No recognized gain or loss from like-kind exchange of real property

No recognized gain from an involuntary conversion of property, as long as the taxpayer uses any conversion proceeds to purchase replacement property within a short period of time

No recognized gain on the transfer to a spouse or to a former spouse when the transfer is incident to the divorce

Question 7

Realized Gain: What is the CHARACTER of the Gain?

Answer 7

There is a preferential tax rate for LONG-TERM CAPITAL GAINS

Question 8

Definition of Long-Term Capital Gain

Answer 8

(1) Gain from the sale or exchange;
(2) Of a capital asset (not related to the taxpayer’s trade or business and not a self- created intangible);
(3) Held for more than one year

Question 9

Realized Loss: Is the Loss RECOGNIZED (deductible)?

Answer 9

(1) Business losses
(2) Investment losses
(3) Casualty and theft losses

Question 10

Realized Loss: What is the Character of the Loss?

Answer 10

Capital losses are only deductible to the extent of capital gains plus up to $3,000

Any net capital loss carries over to the next taxable year