REG 3 - Taxable and Nontaxable Dispositions Flashcards
What are investments that you have to recognize gain on for like-kind business exchanges?
Gain must be recognized for anything on paper
- Inventory
- Stock
- Securities
- Partnership
- Interests
- Goodwill/going concern value
What are the two types of properties that are considered qualifying properties in order to exclude gain for exchange of like-kind business/investment assets?
1) Real property must be exchanged with other real property - DOES NOT HAVE TO BE SAME GENERAL USE e.g. building
2) Personal property must be exchanged with other personal property - MUST BE SAME GENERAL USE e.g. machinery
What are the timing requirements for like-kind business/investment assets exchange - in order to defer gain?
The taxpayer must identify like-kind replacement property within 45 days of giving up the property
AND
The like-kind property must be received by the earlier of 180 days OR the due date of the taxpayer’s tax return.
How are losses treated for exchange of like-kind business/investment assets?
Losses are NOT recognized in a like-kind exchange.
What is STEP 1 for like-kind exchanges?
Boot received
Boot paid
Amount realized
Boot received = cash received + FMV of non like-kind property + net relief of liabilities
Boot paid = cash paid + FMV of non like-kind property + net relief of liabilities assumed
Amount realized = FMV of new property receieved + FMV of boot received - FMV of boot paid
What is STEP 2 for like-kind exchanges?
Realized gain/loss
Recognized gain/loss
Deferred gain/loss
Realized gain/loss = Amount realized - NBV (adjusted basis) of property given up
Recognized gain/loss = LESSER of realized gain or boot received
Deferred gain/loss = Realized gain/loss - recognized gain/loss
What is STEP 3 for like-kind exchanges?
Basis of new property
Basis of new property = NBV of old property given up + GAIN RECOGNIZED + boot paid - boot received.
Like-kind exchange: No boot - How do you calculate amount realized, realized gain/loss, recognized gain/loss, deferred gain/loss, and basis?
Taxpayer trades automobile for another automobile. The automobile originally costs $35,000. The taxpayer has taken $18,000 of depreciation (NBV = $17,000). The taxpayer exchanges another automobile for $20,000.
1) Amount realized = FMV of new property received + FMV of boot received - FMV of boot paid
$20,000 + $0 - $0 = $20,000
2) Realized gain/loss = Amount realized - NBV (adjusted basis) of property given up
$20,000 - $17,000 = $3,000
3) Recognized gain/loss = LESSER of realized gain/loss or boot received
No boot received, so recognized gain is $0
4) Deferred gain/loss = Realized gain/loss - recognized gain/loss
$3,000 - $0 = $3,000
5) Basis of new property = FMV of property received - deferred gain + deferred loss
$20,000 - $3,000 + $0 = $17,000 - NBV = nontaxable
Like-kind exchange: Realized loss - How do you calculate amount realized, realized gain/loss, recognized gain/loss, deferred gain/loss, and basis?
Taxpayer trades automobile for another automobile. The automobile originally costs $35,000. The taxpayer has taken $12,000 of depreciation (NBV = $23,000). The taxpayer exchanges another automobile for $20,000.
1) Amount realized = FMV of new property received + FMV of boot received - FMV of boot paid
$20,000 + $0 - $0 = $20,000
2) Realized gain/loss = Amount realized - NBV (adjusted basis) of property given up
$23,000 - $20,000 = $-3,000
3) Recognized gain/loss = LESSER of realized gain or boot received
No boot received, so recognized gain is $0
4) Deferred gain/loss = Realized gain/loss - recognized gain/loss
$-3,000 - $0 = $-3,000
5) Basis of new property = FMV of property received - deferred gain + deferred loss
$20,000 - $0 + $3,000 = 23,000 - NBV = nontaxable
Like-kind exchange: Realized gain less than boot received - How do you calculate amount realized, realized gain/loss, recognized gain/loss, deferred gain/loss, and basis?
Taxpayer trades automobile for another automobile. The automobile originally costs $35,000. The taxpayer has taken $18,000 of depreciation (NBV = $17,000). The taxpayer exchanges another automobile for $16,500 and $3,500 in cash.
1) Amount realized = FMV of new property received + FMV of boot received - FMV of boot paid
$16,500 + $3,500 = $20,000
2) Realized gain/loss = Amount realized - NBV (adjusted basis) of property given up
$20,000 - $17,000 = $3,000
3) Recognized gain/loss = LESSER of realized gain or boot received
Realized gain is lesser than boot received so, $3,000 is recognized gain
4) Deferred gain/loss = Realized gain/loss - recognized gain/loss
$3,000 - $3,000 = $0
5) Basis of new property = FMV of property received - deferred gain + deferred loss
$16,500 - $0 + $0 = $16,500
Like-kind exchange: Boot received less than realized gain - How do you calculate amount realized, realized gain/loss, recognized gain/loss, deferred gain/loss, and basis?
Taxpayer trades automobile for another automobile. The automobile originally costs $35,000. The taxpayer has taken $18,000 of depreciation (NBV = $17,000). The taxpayer exchanges another automobile for $17,500 and $2,500 in cash.
1) Amount realized = FMV of new property received + FMV of boot received - FMV of boot paid
$17,500 + $2,500 = $20,000
2) Realized gain/loss = Amount realized - NBV (adjusted basis) of property given up
$20,000 - $17,000 = $3,000
3) Recognized gain/loss = LESSER of realized gain or boot received
Boot received is lesser than realized gain so, $2,500 is recognized gain
4) Deferred gain/loss = Realized gain/loss - recognized gain/loss
$3,000 - $2,500 = $500
5) Basis of new property = FMV of property received - deferred gain + deferred loss
$17,500 - $500 + $0 = $17,000
Like-kind exchange: Realized gain with boot paid - How do you calculate amount realized, realized gain/loss, recognized gain/loss, deferred gain/loss, and basis?
Taxpayer trades automobile for another automobile. The automobile originally costs $35,000. The taxpayer has taken $18,000 of depreciation (NBV = $17,000). The taxpayer exchanges another automobile for $22,000 and GIVES $2,000 in cash.
1) Amount realized = FMV of new property received + FMV of boot received - FMV of boot paid
$22,000 - $2,000 = $20,000
2) Realized gain/loss = Amount realized - NBV (adjusted basis) of property given up
$20,000 - $17,000 = $3,000
3) Recognized gain/loss = LESSER of realized gain or boot received
No boot received, so recognized gain is $0
4) Deferred gain/loss = Realized gain/loss - recognized gain/loss
$3,000 - $0 = $3,000
5) Basis of new property = FMV of property received - deferred gain + deferred loss
$22,000 - $3,000 + $0 = $19,000
