Chap.8-9.PropertyDisposition

Chap.8-9.PropertyDisposition - Federal Income Taxation...

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Federal Income Taxation DISPOSITION OF PROPERTY Determination of gain/loss Basic formula: Amount Realized less Adjusted Basis = Gain/loss Realized Realized vs recognized Gain recognized means the amount of gain realized that has to be reported for tax purposes. Amount Realized equals Sum of money Plus FMV of property received Plus liabilities or expenses of the seller that are assumed/paid by the buyer, Less liabilities or expenses of the buyer that are assumed/paid by the seller, Less selling expenses, eg commissions, transfer taxes etc. BASIS Equals original basis (cost, if purchased) plus capital additions & improvements less capital cost recovery allowances.
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Capital cost recoveries - depreciation, amortization, depletion. Capital Gains and Losses Gain or loss on the sale or exchange of a capital asset = capital gain or loss. Definition of capital asset It includes all assets except : o Inventory & property held primarily for resale. o Accounts and notes receivable in trade or business from sale of services or goods. o Depreciable property (personalty or realty) or land used in a trade or business. o Copyright, literary, musical, or artistic composition, or similar property if created by the taxpayer or acquired by gift from creator. o U.S. Government publication. o 2 new categories Tax treatment of capital gains & losses Effect on TI depends on entity. INDIVIDUALS The taxpayer computes the net affect on gross income by taking into consideration the following rules: Maximum $3,000 CAP LOSS deduction is allowed each year. In applying the limitation, STCLs are deducted first. No capital loss carrybacks are allowed. Capital losses can be carried forward indefinitely & the character of the capital loss carryover is retained.
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Preferential tax rates apply for net capital gains - 10, 20, 25, 28% CORPORATIONS Net CGs are included in gross income Net CLs are not deductible against other income. Thus, capital losses can be deducted against capital gains only. CLs can be carried back 3 years & forward 5 years & deducted against any CGs. Trade and Business Assets Overview Recall land & depreciable property used in T/B are not capital assets; under section 1231, sale/ exchange of business property is accorded special treatment. In general, net losses are treated as ordinary losses; net gains (except for depreciation recapture) are treated as capital gains. IRC Section 1231 property includes T&B depreciable or realty property held for more than 1 year; this includes depreciable personal property and business real property; also capital assets used in a T or B. It does not include most T/B inventory. Tax treatment of Section 1231 assets.
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This note was uploaded on 05/19/2008 for the course ACCT 3531 taught by Professor Ryan during the Spring '08 term at Temple.

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Chap.8-9.PropertyDisposition - Federal Income Taxation...

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