Realized and Recognized Gains/Losses Flashcards
Define Amount Realized?
Amount a seller receives when he gives up an asset
what the tax payer gets
Formula for Amount Realized
Cash Received \+ FMV property received \+disposition of liability -selling expenses \_\_\_\_\_\_\_\_\_\_\_\_\_\_ Amount Realized
disposition of liabilities
someone takes over your liabilities (ie: loan)
Formula for Adjusted Basis
Original Basis -Accumulated Cost Recovery \+Capital Improvements \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Adjusted Basis
Formula for a Realized Gain/Loss
Amount Realized (what taxpayer got)
- Adjusted Basis (what taxpayer gave up)
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Realized Gain/Loss
Formula for Recognized Gain/Loss
Realized Gain -Postponed gain/loss -tax free gain/loss \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Recognized gain/loss
What is a methods are used to determine Original Basis? (3)
- property purchased = cost basis
- Bargain purchase
- Lump-Sum purchase
- gifts
- inheritance
What is Goodwill?
- Lump -sum purchases
- goodwill = excess of purchase price over FMV
- Goodwill becomes its own intangible asset
- Amortized -SL over 180 months
In a lump-sum where purchase price > FMV what is each assets basis?
FMV of each property = basis
Purchase price - FMV = Goodwill
Goodwill is amortized SL over 180 mth
In a lump-sum where purchase price < FMV what is each assets basis?
- FMV/Total FMV = ratio
2. ratio * purchase price of each item = basis for item
What is the original basis for bargain property?
- FMV - cost basis = included amount
- Cost Basis + Included amount = Original Basis
- Included amount is also added to buyer’s GI
What is the original basis for a purchased asset?
Cost
What is the Cost Recovery Method for Goodwill?
Amortized - Straight Line over 180 months
Gift Property: How do you determine Original Basis?
- Calculate both Gain and Loss Basis
- Gain Basis: (Sale Price - Adj Basis)
Where basis = donor’s basis - Loss Basis: (Sale price - adj basis)
Where basis is the lesser of :
donor’s basis OR FMV on date of gift
- If Gain Basis = gain use gain basis
- If Loss Basis = loss us loss basis
- If Loss basis = Gain and Gain basis = Loss then
wash sale = no gain or loss
Gift Property: What is the holding period?
Gain Adjusted Basis = Donor + Donee holding period
Loss Adjusted Basis = Donee on gift date
No Gain/Loss - wash - irrelevant
What is the basis for inherited property?
FMV on date of death or 6 months after date of death (many rules)
taxpayer choice
What is the holding period for inherited property?
Long term for everything
What is the exception for basis on inherited property?
Death Bed Gifts.
Basis = original owners basis
How are personal gains and losses recognized?
Gains = taxes
Losses are generally not deductible
Can personal causality and theft losses be deducted?
- (20108-2022) if it occurred in a federally declared disaster area - itemized deduction
- casualty theft or loss can offset casualty theft gain
Disallowed Losses for Related Parties rule
Family members > 50% ownership interest
Corporation-shareholder > 50%ownership interest
Partnership-partner > 50% ownership interest
Does a like-kind exchange have both realized and recognized gain/loss?
Realized gain/loss at time of event
Recognized gain/loss is deferred
Is a Like-Kind Exchange taxable?
no
What are the 5 requirements for a Like-Kind Exchange?
- It must be an exchange NOT a sale
- An asset must be traded and an asset must be received
- Exchange must be the same asset class
- Exchange can be like-king for on party but not the other
- Exchange must meet timing requirements
