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Acct 308 Chap10 lesson - CCH Federal Taxation Comprehensive...

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CCH Federal Taxation Comprehensive Topics Chapter 10 Property Transactions: Determination of Basis and Gains and Losses ©2005, CCH INCORPORATED 4025 W. Peterson Ave. Chicago, IL 60646-6085 800 248 3248 http://tax.cchgroup.com
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CCH Federal Taxation Comprehensive Topics 2 of 51 General Rule for Any Type of Disposition Amount realized (i.e., fair market value of all consideration received) Adjusted basis of all consideration given = Realized gain or loss (i.e., economic accession to or reduction of wealth) Recognized (i.e., taxable) gain or loss or Deferred (i.e., postponed) gain or loss or Exempt (i.e., tax-free) gain or disallowed loss Chapter 10, Exhibit 1
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CCH Federal Taxation Comprehensive Topics 3 of 51 Seller's Amount Realized Cash received + Fair market value (FMV) of property received + FMV of services received + Liabilities of seller assumed by buyer (i.e., seller’s “debt relief”) Selling expenses (includes brokerage, advertising, and legal fees paid by seller) = Amount realized Chapter 10, Exhibit 2
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CCH Federal Taxation Comprehensive Topics 4 of 51 Adjusted Basis Cost (or other adjusted basis) on date of acquisition + Cost of improvements + Buying expenses, including commissions, legal, title search, surveys and appraisal fees paid at date of original purchase + Amount of loan assumption (does NOT include new financing at original purchase date!) _ Depreciation (allowable depreciation reduces basis, even if not taken) Insurance proceeds received on partial destruction casualties Deductible loss on partial destruction casualties + Capital gain on partial destruction casualties = Adjusted basis Chapter 10, Exhibit 3
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CCH Federal Taxation Comprehensive Topics 5 of 51 Cost of Improvements Repair and Maintenance Deductions vs. Capital Expenditures Tax Treatment Repair and Maintenance Deductible Unless Personal Use Capitalized Roofing Patching leaks Adding new roof Wiring Mending Major replacement Plumbing Replacing segments Replacing systems Plastering Filling cracks Installation, renovation, and remodeling Paving and resurfacing Patching potholes Initial paving, major resurfacing Fire damage Cleanup, removal, and temporary facilities Modernization incident to restoring former facilities Land clearing Ordinary maintenance, bush- hogging Preparing building site for construction Chapter 10, Exhibit 4
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CCH Federal Taxation Comprehensive Topics 6 of 51 Holding Period—General Rules Holding Period Beginning Date. The holding period of property usually begins on the DAY AFTER the acquisition date. Exceptions to the “Day After” Rule . With the six types of property below, holding period begins on the DAY OF acquisition, NOT the day after acquisition. 1. Gifts if basis is determined using FMV 2. Nontaxable stock rights if basis is determined under the allocation method 3. Taxable stock rights 4. Short sales against the box with a tainted holding period 5. Conversions with conversion fees 6. Taxable conversions Chapter 10, Exhibit 5a
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CCH Federal Taxation Comprehensive Topics 7 of 51 Holding Period Computation by Months. Generally, holding period is
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