Tax: Sales & Disposition on Assets Flashcards
Taxes
Sales & Disposition of Assets
Categories
Ordinary Assets
- inventory and AR/notes receivable
- appreciable property used in trade/business if owned less than one year
- Generally, copyrights
Section 1231 Assets: Business Assets
- depreciable property used in a trade/business and owned more than one year
Capital Assets
- do not include items listed above
- most other types of property including property held for investment use and personal use including goodwill
Taxes
Sales & Disposition of Assets
Sales & Disposition
Realized Gain/Loss Computed as:
- amount realized - adjusted basis = realized gain/loss
- amount realized = cash received + FMV property received - liabilities assumed by buyer - selling expenses
- adjusted basis = acquisition basis of property + capital improvements - depreciation, amortization, depletion + liabilities assumed
Recognized Gain/Loss
- amount of realized gain/loss included in taxable income
Taxes
Sales & Disposition of Assets
Special Basis Issue
Gifts
- donee’s basis is:
- gain: basis of donor
- loss: lower of:
- FMV @ Date of Gift
- adjusted basis of donor
- depreciable basis = gain basis
- basis is increased for any gift tax paid
- Adjustment basis = (Unrealized Appreciation/(FMV @ Date - Annual Exclusion)) x Gift tax paid
Tax Effects
- gain is recognized only if donee sells for more than gain basis
- loss is recognized only if donee sells for more than loss basis
- sold for amount inbetween, no gain or loss recognized
Holding Period
- gain: includes holding period of previous owner
- loss: begins at date of gift
Inheritance
- basis is FMV at death or alternative valuation date (6 months later)
- holding period is always long term
Property converted from personal to investment
- gain: adjusted basis
- loss & depreciable basis lower of
- adjusted basis
- FMV @ date of conversion
Taxes
Sales & Disposition of Assets
General Rule
Gain Basis Donor’s Basis
> no gain/loss
Loss Basis (lower of) Donor’s Basis
Fair Market Value
