R3 - Dispositions

Question 1

What’s the difference btwn Realized and Recognized gain?

Answer 1

Recognized = What goes in the tax return.
Realized = What really happened
Realized Gain or Loss (General) = Amount Received - Adjusted Basis = Gain or Loss

Question 2

When is gain/loss not recognized, but deferred?

Answer 2

When HIDE IT or WRAP applies.

Question 3

Basis in Involuntary Conversions

i.e. insurance proceeds, condemned property

Answer 3

Basis = Nontaxable = NBV

Carrying amount + Expenses

Question 4

Involuntary Conversions
Basis when property received > cost of replacement
Recognize gain

Answer 4

Recognize gain to the extent of boot

Basis = Cost of prop received - gain not recognized

Question 5

Involuntary Conversions
Basis when property received < cost of replacement
Recognize loss

Answer 5

Recognize loss = Basis - amounts received.

Basis = Cost of replacement property

Question 6

Like-Kind exchanges

Answer 6

FMV of Prop Received
(-) NBV property given
(+) Cash received
(-) Cash given
(+) Liability relief
(-) Liability assumed
(=) Realized Gain
Timing: ID within 45 days and; receive on earlier of tax return due date or 180 days later

Question 7

Amount Received in Like-Kind Exchanges

Answer 7

FMV of Prop Received + Boot Received - Boot Paid

Question 8

Basis in Like-Kind Exchange (Boot Received)

Answer 8

FMV of Prop Received - Deferred Gain + Deferred Loss

Question 9

Gain in Like-Kind Exchange (Boot Received)

Answer 9

Recognized = < of Realized Gain or Boot Received
Realized = FMV of Prop Received + Boot Received - NBV
Deferred gain (loss) = Realized Gain - Recognized Gain

Question 10

Losses in Like-Kind Exchange

Answer 10

Adjust basis of new property (increase by deferred loss)

Question 11

Boot Received

Answer 11

Cash Received + FMV of Non-Like-Kind Prop Received + Net Relief from Liability

Question 12

Boot Paid

Answer 12

Cash Paid + FMV of Non-Like-Kind Prop Given Up + Net Liability Assumed

Question 13

Installment sales

Answer 13

Taxed when cash payment is received

Question 14

Treasury Stock

Answer 14

Exempt from gain, losses are disallowed

Question 15

Worthless Securities

Answer 15

First Date = (# of shares not repurchased * Sales Price) - (# of shares not repurchased * Purchase Price).
Second Date = (# of shares sold * Sales Price) - (# of shares sold * (Old Sales Price - Old Purchase Price))

Question 16

Homeowner’s exclusion

Answer 16

• If TP dies, and surviving spouse sells home within
  2 years, full exclusion is allowed.
• If depreciation is taken, then it becomes taxable gain. (depreciation recapture)
• If home used to be rental property, then depreciation recap applies:
  1. Calc realized gain
  2. Determine depreciation recap
  3. Calc remaining gain = Realized gain - Depreciation recap.
  4. Remaining gain is prorated between nonqualified and qualfiied. Nonqualified use is taxable.
  5. Taxable gain = Depreciation recap + nonqualified use prorated.