Chapter 14N - Chapter 14 Property Transactions...

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Chapter 14 Property Transactions
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Determination of Gain or Loss The gain or loss realized in a property transaction is the mathematical difference between the amount realized in a sale or other disposition and the adjusted basis of the property surrendered Sale or disposition essentially refers to any transaction in which a taxpayer realizes benefit in exchange for property It is not necessary that there be a sale transaction or that cash be received for gain or loss to be realized by the taxpayer surrendering property other than cash The adjusted basis of purchased property is generally cost, plus or minus certain adjustments The adjusted cost, or adjusted basis, of a given property is the amount that can be recovered tax-free upon its disposition If property is sold for exactly its cost, as adjusted, there is no gain or loss realized If a taxpayer receives more than the adjusted basis in exchange for property, gain is realized only to the extent of that excess The adjusted basis is recovered tax-free.
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General Rule of Recognition A recognized loss also is generally given its full tax effect in the year of realization Depending on the type of loss, it may either offset against gains or deducted against other forms of income in determining taxable income Losses on the sale of property used for personal purposes are disallowed Certain other losses are deferred to later tax years
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Computing Amount Realized The amount realized from a sale or other disposition of property includes the amount of money received plus the fair market value of any other property received in a transaction The amount realized also includes: Any debt obligations of the buyer If the contract provides for inadequate interest or no interest, interest must be imputed and the sale price reduced accordingly The amount of any existing liabilities of the seller discharged in the transaction Specifically, it includes any debts assumed by the buyer and any liabilities encumbering the property transferred that remain with the property in the buyer’s hands Exhibit 14-3 illustrates the computation of both the amount realized and the gain or loss realized from the sale or other disposition of property Any expenses of selling the property reduce the amount realized
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Basis Determination Rules The adjusted basis of property may be determined in several ways, depending on how the property is acquired and whether any gain or loss is being deferred in the transaction
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Basis Determination Rules (cont’d) Property Acquired by Purchase In a simple purchase transaction, basis is the cost of the property acquired Cost is the amount of money paid and the fair market value of any other property transferred in exchange for a given property Any costs of acquiring property are included in basis Any installation and delivery costs also are part of basis Periodic operating costs such as interest and taxes are
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This note was uploaded on 08/10/2010 for the course INTB AND T 3352 taught by Professor Newmanandpriest during the Spring '09 term at University of Houston.

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Chapter 14N - Chapter 14 Property Transactions...

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