Taxable and Nontaxable Dispositions Flashcards
What is the homeowner’s exclusion?
gain on sale of personal residence may be eligible for exclusion from gross income ($500k for MFJ and $250k for all other filers); however, a loss on sale is not deductible
must use property as principal residence for 2+ years during the 5 years preceding the sale (the period of ownership does not have to be continuous)
either spouse must meet the ownership requirement but both spouses must meet the use requirement (if not, one spouse is still eligible for $250k)
What are involuntary conversions?
Ex. theft, destruction, condemnation
no gain is recognized when similar property is received to replace the involuntarily converted property or all insurance proceeds are reinvested in similar property (if all proceeds are not reinvested, a gain will be recognized for amount not reinvested)
reinvestment must occur within 2 years; when proceeds are greater than replacement cost, the basis of replacement property is its cost less gain deferred (involuntary conversion rules apply to gains only…losses are recognized –> the basis of the replacement property is its replacement cost)
What is the exchange of like-kind business/investment real property?
taxpayers swapping real property used in business/investment; personal property does not qualify for this exchange
What is boot?
cash, relief of debt, or nonqualifying property
only boot received, not boot paid, triggers gain recognition; the gain recognized is the lesser of the gain realized and the boot received
if debt is assumed and relieved, the debt is netted together; net debt assumed = boot paid while net debt relief = boot received
Formula to calculate basis in like-kind exchange
basis in property received = FMV of property received - deferred gain + deferred loss
realized losses are not recognized in like-kind exchanges; all of the loss is deferred and increases the basis in the new property
How is realized gain/loss calculated?
FMV of new real property received + boot received (or less boot paid) - adjusted basis of real property given up
if there is no boot received, then there is no recognized gain
What is a wash sale?
stocks/bonds are sold for a loss and are repurchased within 30 days before or after the sale date (dealers in securities are excluded from this rule); the loss on a wash sale is disallowed
