M2 Taxable and Nontaxable Dispositions Flashcards
Like-Kind Exchanges. Formula to calculate the gain/loss REALIZED in a like-kind exchange transaction.
Amount realized =
FMV of new property received
+Boot received
LESS Adjusted basis of old property (NBV)
Like-Kind Exchanges. Formula to calculate the gain RECOGNIZED in a like-kind exchange transaction.
LESSER OF
Amount realized (see previous flashcard)
OR boot received*
*take the NET of boot paid/received if both occur in the transaction (for example, TP assumed liability of 1,000 and the other party assumed liability of 3,500; the total “boot received” would be 3,500 - 1,000 = 2,500)
Like-Kind Exchanges. Formula to calculate the basis of the new property in a like-kind exchange transaction.
New basis = Adjusted basis of OLD property \+ Boot PAID (liabilities assumed) - Boot RECEIVED \+ Gain RECOGNIZED
Like-Kind Exchanges. Formula to calculate the loss RECOGNIZED in a like-kind exchange transaction.
ALWAYS 0 - there is NEVER a loss recognized on a LKE transaction (HIDE IT
MNEMONIC for non-taxable gains and for non deductible losses
HIDE IT H = Homeowner's exclusion I = Involuntary conversions D = Divorce property settlement E = Exchange of like-kind (business) I = Installment sale T = Treasury capital and stock
LOSSES - WRaP W = Wash sale losses R = Related party losses a = and P = Personal losses
Calculation of recognized gain/loss. LIMITED TO
Amount realized
Gain or Loss
*Limited to amount of boot received (cash, excess of debt)
Homeowner’s Exclusion.
- Limit for married filing joint.
- Limit for single filers
- Qualification requirement
MFJ = 500,000
Single = 250,000
*Any excess is taxable
-taxpayer must have owned and used the property as principal residence for two years or more during five-year period
Homeowner’s Exclusion - hardship provision if ownership requirement NOT met.
(i.e. sale due to change of employment, health or unforseen circumstances)
months of qualifying ownership divided by 24 MONTHS
Involuntary Conversions are nontaxable as long as the money received is ___
REINVESTED for the same purposes
Involuntary Conversion basis (as long as reinvestment requirement is met)
Same as basis of old asset increased by any additional amounts invested
Involuntary conversion time requirement:
- Personal Property
- Business property
- Personal - Must be reinvested within two years after close of taxable year
- Business - 3 years
Involuntary conversion basis if boot is received (excess of reinvestment amount)
Realized Gain:
Amount received
----------------------- Realized gain (excess of reinvestment) -------------------- Unrecognized gain
Cost
Basis of new building
Involuntary conversion loss recognized?
Basis?
RECOGNIZED IMMEDIATELY
Basis is the Replacement cost
E in HIDE IT = Like-Kind EXCHANGES. Exception examples
Not things on “Paper”
(Inventory, stock, securities, partnership interests, goodwill/going concern value, real property in DIFFERENT countries)
Like-Kind Exchanges. In order for personal property to qualify it must have the same ___?
GENERAL USE
*real property doesn’t have this requirement (i.e. can be office building for apartment
