Glossary Chapter 9.docx - Glossary Chapter 9 Adjusted basis...

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Glossary Chapter 9 Adjusted basis The original basis, plus or minus changes in the amount of unrecovered investment. It roughly corresponds to the book-value concept studied in financial accounting. At any point in time, the remaining capital investment to be recovered is represented by an asset's adjusted basis. An asset's adjusted basis may never be less than zero. Alternate valuation date See inherited property . Amount realized Capital is recovered at disposition by offsetting the adjusted basis at the date of disposition with the amount realized from the property disposition . The amount realized from a disposition is the amount received from the disposition (generally the sales price of the property), less the expenses incurred to make the disposition. If the amount is greater than the adjusted basis, the taxpayer has a realized gain on the disposition. If the amount realized is less than the adjusted basis, capital investment is not fully recovered, resulting in a realized loss . Bargain purchase A true bargain purchase is taxable to the buyer. Such a purchase occurs when the difference between the purchase price and the fair market value represents an effort by the seller to confer an economic advantage to the buyer. Bargain purchases are typically found in employer/employee purchases and related party transactions. Carryover basis Indicates that all or part of an asset's basis transfers from one owner to another or from one asset to another. Transactions resulting in carryover basis are subject to special rules for determining holding period?an adding on of the holding period of the prior asset or of a prior owner. Conduit entity A nontaxable reporting entity, the tax attributes of which (income, deductions, losses, credits) flow through to its owner(s) for tax purposes. Direct construction costs Costs that are actually incurred to physically construct an asset. Examples of direct costs include materials, labor, supplies, and payments to subcontractors.
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