Chapter 7 - Chapter 7 Property Transactions Basis Gain and...

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Chapter 7 Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges Determination of Gain or Loss o Amount Realized – Adjusted Basis = Realized Gain/Loss Beginning Basis is always the purchase price of an asset o Depreciation changes the basis which is called the Adjusted Basis Amount Realized o Total consideration received, including cash, FMV of property received, mortgages/loans transferred to buyer o Reduced by any selling expenses Adjust Basis o Original basis of an asset is generally its cost. o Original cost plus capital additions less capital recoveries Cost of improvements and betterments to the property that are capital in nature and not currently deductible Capital recoveries Amount of basis recovered through: o Depreciation o Amortization o Depletion o Casualty and theft losses Is the Gain/Loss Recognized o The Gain/Loss is not always included in the computation of taxable income. If it is not included , then it is not “recognized”. If it is
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