UGBA 121 Fall 2019 Chapter 13 Gains and Losses.pptx - Gains...

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Gains and LossesChapter 13Eric Ryan, J.D., CPAFall 2019UGBA 121Federal Income Tax AccountingFor educational purposes only
Gain and Loss - ConceptsGross Income broadly defined – IRC Sec. 61(a)“ . . . All income from whatever source derived . . . “Includes foreign sources as well as U.S. sourcesBut, does not include “return of capital”Example: Individual A purchased stock for $100 and later sold it for $150. While the sales proceedsare $150, the incomeis $50.Has a taxable event occurred?What about a “stock split” where A receives 200 shares of B Corporation in exchange for A’s original 100 shares?See: Eisner v. Macomber– no taxable event occurredIRC Sec. 1001 – “The gain from the sale or other disposition of property shall be the excess of the amountrealizedtherefrom, over the adjusted basis provided in Section 1011.”See the Concept Summary 13.1, page 13-3
Dispositions and RealizationSales and Dispositions include:Sales: Individual A sells land he owns for $175,000, which he purchased for $100,000. The gain from the sale is $75,000.Exchanges: Individual exchanges 100 shares of Y for 40 shares of XTrade-ins: Individual exchanges Old Car plus Cash for New CarCasualty losses: Often gives rise to a loss. But if compensated by insurance, could be a gain.Condemnations (by a government; some payment received)Example: Individual A owned land in City X, which he purchased for $100,000. City X offered to pay A $150,000 for the land, which A refused. City X took ownership of it via a condemnation proceeding, and A sued to receive $200,000. The judge awarded $175,000, which was paid, and is the proceeds from the disposition. The gain from the disposition is $75,000 ($175,000 - $100,000).Realization means:Significant change in ownership rights. A change in the value of property is not sufficient. Treas. Reg. Sec. 1.1001-1(a).
Example: New Bookstore Inc. purchased the assets and assumed the liabilities of Old Bookstore Inc. NBI paid $80,000 cash.OBI owned a building arguably worth $100,000 with a mortgage of $10,000 on it. OBI originally purchased the building for $60,000. OBI paid attorney’s fees of $3,000. What is OBI’s amount realized, and OBI’s gain or loss?

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