Chap.7.Property_Acquisition

Chap.7.Property_Acquisition - Federal Income Taxation...

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Federal Income Taxation CHAPTER 6 Property Classification Personalty vs realty Personal use vs business/investment use Tangible vs intangible ADJUSTED [TAX] BASIS equals cost or initial basis plus capital additions & improvements less capital cost recovery allowances. Capital cost recoveries include: tax deductions from depreciation, amortization, depletion, exempt income, losses. What is a "capital addition or improvement" versus a repair or maintenance expense? Per the regulations, expenditures that add value to the property are capital; expenditures that do not extend the life of the property, but merely maintain or preserve the property are repairs. INVENTORY Uniform Capitalization Rules are explicit rules re: what must be included in inventory "cost." Includes all direct costs of manufacturing, purchasing, & storing inventory, and any indirect costs that benefit or are incurred because of production or resale. See text for list of expenses that should be included (in part) in inventory cost under unicap rules. Result of unicap rules is that inventory costs under tax law can differ from GAAP. This will result in a temporary difference between financial net income and taxable income. Assigning inventory cost to CGS - some appropriate convention such as LIFO, FIFO, specific identification, etc. Required conformity between tax method & financial reporting.
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Chap.7.Property_Acquisition - Federal Income Taxation...

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