ch8tax1 - Taxation of Business Entities Property...

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Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions Text: Chapter 8 Taxation of Business Entities
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C8 - 2 Outline Capital Assets Defined Sale/Exchange Holding Period Tax Treatment Section 1231 Assets Defined Tax Treatment Look-back Provisions Depreciation Recapture Section 1245 Section 1250 Section 291 “Un-recaptured” Section 1250 Gain
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C8 - 3 Taxation of Capital Gains And Losses Capital gains and losses must be separated from other types of gains and losses for two reasons: Long-term capital gains may be taxed at a lower rate than ordinary gains. A net capital loss : Is only deductible up to $3,000 per year by individuals. Can only be used to offset capital gains of corporations .
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C8 - 4 Proper Classification of Gains and Losses Depends on three characteristics: The tax status of the property Capital asset, § 1231 asset, or ordinary asset The manner of the property’s disposition By sale, exchange, casualty, theft, or condemnation The holding period of the property Short term and long term
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C8 - 5 Capital Assets § 1221 defines capital assets as everything except : Inventory (stock in trade) Notes and accounts receivables acquired from the sale of inventory or performance of services Realty and depreciable property used in trade or business (§ 1231 assets) Creative works (e.g., art, music, copyrights) when created by taxpayer (or for which taxpayer takes a carryover basis from the creator) However, 2006 Tax Act allows self-created musical compositions or copyrights to be treated as capital assets Certain publications of U.S. government Hedging instruments that are an integral part of inventory system
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C8 - 6 Capital Assets Thus, capital assets are: Assets held for investment (e.g., stocks, bonds, land) Personal use assets (e.g., residence, car) Miscellaneous assets selected by Congress (e.g. patents, songs)
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C8 - 7 Sale or Exchange Recognition of capital gains and losses generally requires a sale or exchange of assets. Sale or exchange is not defined in the Code. There are some exceptions to the sale or exchange requirement. Worthless securities A security that becomes worthless creates a deductible capital loss without being sold or exchanged
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C8 - 8 Capital Assets – Special Rules Patents A patent held by an individual is considered to be a capital asset. When all substantial rights are transferred (sold) to
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This note was uploaded on 08/25/2010 for the course TAX 4001 taught by Professor Hampton,m during the Fall '08 term at University of Central Florida.

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ch8tax1 - Taxation of Business Entities Property...

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