R3. Taxable and Non taxable Dispositions Flashcards
Realized vs. recognized
Realized = real world
Recognized = record on record/ tax return
Amount realized
Money received (boot) = loot COD (calcellation of debt) = loot FMV property Less: Selling expenses -------------------------------------------- amount realized
the boot will be taxed
Gain & loss
All realized gains and losses are recognized unless HIDE IT (gain)
WRap ( loss ) applies
GAIN
- Homeowner’s exclusions
- Involuntary conversion
- Divorce property settlement
- Exchange of like-kind ( business)
- Installment sale
- Treasury capital and stock
OR
LOSS - Wash sales losses - Related party losses And - Personal losses
Taxable gain recognized = realized gain to the extent of boot/loot
Loot is taxable:
- Cash: kept and not reinvested
- COD: Excess debts assumed by the buyer
HIDE IT
H
H - Homeowners Exclusion
2 out of 5 years
$500k MFJ ( both should live in the house for 2 years)
$250k single
- excess gain is taxable
- either spouse meet the ownership requirement
- both spouse must meet the use requirement
If only one spouse meet both owner and use - they can still take the single $250k amount exclusion
no age requirement
no rollover required
renewable
……………………
Hardship Provision : Prorate the exclusion
even when the use test is not met, may take the prorated exclusion
IF
change in employment ( must be at least 50 miles farther)
health or
unforeseen circumstances
max exclusion = no of qualifying month of qualifying ownership / 24 months * max exclusion amount
……………………………………
Nonqualified Use Provision
= prorate gain exclusion, if rented
…………………………………………
empty house available for sale
- no nonqualified use so if owner and use test met should be able to take all exclusion
HIDE IT
I
Involuntary Conversion
- reinvestment of the involuntarily received proceeds
- not reinvested will be taxable boot/loot
Personal property - have 2 years from year-end to reinvest
Condemned business property ( 3 years from year-end)
Basis = Nontaxable = NBV
……………………………
loss recognized
if the insurance money less than basis then the difference is loss recognized,
while the buying cost will be basis
HIDE IT
D
Divorce Property Settlement
Basis = NBV = nontaxable event
carryover basis
HIDE IT
E
Exchange of like-kind business/investment real property
ONLY
- real property used in a trade or business OR held for investment
- except real property in different countries
……………………………..
Property NOT qualified
- laptop, desk and filling cabinets and so on
- NOT OK M&E –> M&E
…………………………………..
time requirement
-Identified within 45 days &
- Received within 180 days or due date of the tax return filed
Gain when Boot Received: Boot/loot + FMV non-like-kind property
**If the exchange includes both debt assumed and debt relief, the debt is netted
e.g.
gave
real estate basis 25k
fmv 40k
received
real estate fmv 35k
cash 5k
FMV 35k BOOT 5k ---------------------------- got 40k NBV (25k) ------------------------------ gain 15k taxed (5k) - boot ---------------------------------- deferred 10 k
…………………………………
Basis = FMV of received property - deferred gain + deferred loss
= 35k -10k + 0
= 25k
Losses
like-kind exchange
not deductible/ adjust basis of new property
1) like-kind exchange - NO boot
e.g RE -> RE cost $35k Dep (18k) ---------------------- NBV 17k GOT 20k ------------------------- realized gain 3k
no boot so ,
recognized gain = 0
basis
= fmv received - deferred gain + deferred loss
= 20 - 3 + 0
= 17k
……………………………………………………….
2) like-kind exchange : realized loss
e.g.
cost: 35k
depriciation: (12k)
——————————-
NBV 23k
GOT (20k)
———————————
realized loss -3k
recognized gain = 0
basis = fmv got - deferred gain + deffered loss
= 20k - 0 +3k
= 23k
…………………………………………..
3) like-kind exchange : boot received
greater than gain realized
e.g. Cost 35k Depr. (18k) ----------------------- NBV 17k GOT RE (16.5k) Cash (3.5k) --------------------------- Gain 3k
realized gain = 3k
Recognize gain = 3k ( lesser of realized gain or boot received)
deferred gain/loss = 0
Basis = FMV of RE - Deferred gain + Deferred loss
= 16.5 - 0 + 0 = 16.5k
………………………………………
4) like - kind -exchange :boot received
less than gain received
Cost 35k Depr. (18k) ------------- NBV 17k GOT RE (17.5) cash (2.5) ---------------------- gain 3k
gain realized = 3k
recognized gain = 2.5k ( lesser of realized and boot)
deffered gain = 500 (3k-2.5k)
Basis of new property = FMV of RE - DG + DL
= 17.5 - 500 + 0
= 17k
…………………………………………..
5) Like-kind exchange : realized gain, boot paid
Cost 35k depr. (18k) ------------------------ NBV 17k Cash given 2k ---------------------------- Gave 19k GOT RE ( 22k ) Cash 0 ----------------------------- Gain 3k
Realized gain = 3k
Recognized gain = 0
Gain deferred = 3k
Basis = FMV - DG + DL
= 22k - 3k + 0
= 19k
………………………………………………
6) like kinds exchange : realized gain, debt assumed and debt relief (net)
cost 35k Depr (18k) ------------------- NBV 17k Debt relief (5k) --------------------------- Gave 12k GOT RE (18k) Debt assumed 3k ---------------------------------- Gain 3k
net debt is 2k relief
( take lesser of gain or debt relief)
realized gain = 3k
recognized gain = 2k ( take lesser of gain or debt relief)
deferred gain = 1k
basis = FMV - dg +dl
= 18k - 1k +0
= 17k
HIDE IT
I
T
Installment Sales
- taxed when a cash payment is received
Treasury and capital stock transaction ( by the corporation )
- exempt from gain ( and any losses are disallowed)
sale, repurchase, and reissue of stock
WRaP loss
W
W : wash sale loss
- 30 days before or after
- when stock is sold for a loss and is repurchased within 30 days before or after the sale date
basis = purchase price + disallowed loss
date of acquisition = original date
gains are taxable
e.g
sold April `1
100 stock cost 22k for price 21k
1k loss
bought same stock april 25 for 21500
then
1k loss disallowed
new basis = new cost + disallowed loss
= 21.5 +1 = 22.5k
WRaP loss
R
Related party trasactions
Family
more than 50% owned business
basis = gift tax basis rules
WRaP loss
P
Personal loss
- no deduction
gain is taxable as capital gain
