Chapter 6 - GOALS FOR FEBRUARY 18 Taxes in Real Life...

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GOALS FOR FEBRUARY 18 Taxes in Real Life Overview Chapter 6 Presentations Summary Chapter 6 Homework
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Taxes in Real Life Tax Rebates
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Overview of Chapter 6 Gains/Losses from Dealings In Property Key Concepts: Amount Realized Cost Basis
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Presenters Rosehannah Mindy
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Chapter 6 – Gain from Dealings in Property Gain is determined under §1001 as: Amount realized (defined in §1001(b)) minus Cost basis (defined in §1011) Result could be a loss (i.e. cost basis is higher than amount realized)
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Basis Determination Ways to acquire property: Purchase Gift Transfer due to Divorce Inheritance/Bequest
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Basis Determination Purchase (§1012): Your cost basis will be equal to the amount of money you pay plus the fair market value of property you give up. Essential question in basis calculations is “how much did you put in?”
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Fair Market Value (FMV) Fair market value is a key concept in determining both amounts realized and basis when property other than money is exchanged. Definition: “the price at which property would change hands between a willing buyer and willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.” Reg. §20.2031-1(b). (note this is not an income tax section, but is used by the Code for all sections utilizing an FMV concept.
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Cost vs. Value Cost – the price for which you paid for something (including money and property given up) Value – what something is worth at a specific point in time Cost and value will likely NOT be the same and the terms are NOT interchangeable
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Philadelphia Park Amusement Co. v. United States 126 F.Supp 184 Basic facts: Philadelphia Amusement obtained a 50 year license from the city to operate a train line. In 1934, prior to the end of the original license period, the Company exchanged a bridge it had built for an additional 10 year license. In 1946, the Company abandoned the line and the license (prior to its expiration). What should be the loss, if any, on the abandonment of the license? This requires us to know the basis in the license, which requires an analysis of the 1934 transaction in which the license was obtained.
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Philadelphia Park Amusement Co. v. United States 126 F.Supp 184 Did the Company obtain basis in the license in the 1934 transaction in which it deeded the bridge to the City? How much? The court concluded that the “new property” (the license) will take on a cost basis equal to its FMV at the date of the exchange, provided that the owner recognizes gain on the transaction. In other words, in a property for property exchange, basis of new property equals basis of old property plus gain realized (which in theory should be FMV)
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Philadelphia Park Amusement Co. v. United States 126 F.Supp 184 The cost basis of the 10 year extension should be equal to the adjusted basis of the bridge plus any gain recognized by
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This note was uploaded on 09/27/2008 for the course BUS 1000 taught by Professor Professor during the Spring '08 term at Cal Poly.

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Chapter 6 - GOALS FOR FEBRUARY 18 Taxes in Real Life...

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