Accting 123A 3ch14 - Chapter 14 Property transactions Gains...

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Chapter 14 Property transactions Gains All are taxable Losses Deductible only if Business Property Investment Property Casualty Loss A.B = adjustable basis Basis Cost + Improvements - Depreciation Adjusted Basis Ex. Problems 14-21 Cash 12,000 Note 28,000 Liab. Relief 30,000 SP – amount realized 70,000 A.B - 32,000 Gain Realized 38,000 Basis of gifts donor's basis Exception FMV less than donor's basis Property sold at price less than donor's basis SP 10,000 3,500 Donor basis 6,000 <- deduct the lower of donor and FMV FMV 9,000 -6,000 6000 A.B 4,000 <2500> SP 10,000 3,500 5,300 ← its in between donors and FMV so deduct it Donor basis 6,000 FMV 5,000 -5000 6000 5,300 A.B 4,000 <1500> 0 FMV 100,000 A.B 40,000 Gift Tax20,000 Donors basis Tax 40,000 + 20,000 * ((FMV – A.B)/(FMV)) 40,000 + 12,000 = 52,000 Fair Market Value at decedent's Death Sold For 77,000 Basis 52,000 A.B 75,000 FMV 75,000 Gain 2,000 Estate Tax 8,250 note the gain is only 2,000 'cuz gain was taken from the FMV Now Sold for 66,000
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A.B -75,000 Loss <9,000> This loss is deductible because it was commercial real estate Now say it was a personal residence but the daughter never moved into it after the grandma left it for her. It may still be deductible as long as the grand daughter didn't move into the home, so to the grand daughter it looks like investment property. Personal use converted to business use Depreciation: Lower of FMV or Basis Time of Conversion if the FMV is at a loss while it was in personal use, its not deductible the portion of decline after it was converted to business use is deductible Sale: Loss Basis or Gain Basis 14-28 A. Car bought at $4,200, by the time it was converted to business use, it was valued at 2,400$ Selling price 800 Depreciable Basis 2,400 Depreciation 900 Adjusted Basis 1,500 Loss <700> This $700 is deductible because the car is now a business asset, but cant use the 4200$ because it was still personal use at that time Installment Sales Report gain as payment received Spread tax impact to future Time value of money MAY NOT BE USED: Sale of inventory Sale of stock or securities Installment Sales Method normally contract price is = selling price 'cuz contract price is the amount of money the seller will receive, however say the seller owed 20,000 bank, but buyer agrees to assume that debt, so in this case contract price is only 85,000 (105,000-85,000) instead Selling Price 105,000 A.B - 70,000 Gross Profit 35,000 Contract Price 105,000 to find gross profit %, its gross profit / contract price 35,000/105,000 = 33% Now find how much gain will be taxed in 2008 2008 Cash Payments 30,000
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GP% 33% Taxable in 2008 = 10,000 2009 Cash payments 25,000 GP% 33% Taxable in 2009 = 8,333 Selling Price 150,000 A.B 25,000 Morgage 80,000 Down Payment 10,000 Contract price 70,000 Note: Deemed cash only occurs if the mortgage (liability) is greater than A.B, also GP% becomes 100% if liability > A.B 2008- payments Cash 10,000 Deemed Cash Payment 55,000 Total 65,000 GP% 100%, Total Taxable 65,000 Deemed Cash = Mortgage – A.B SP 150,000 Mort. - 80,000 Cash 70,000 Down -10,000 Cash to be received 60,000 Chapter 15 Involuntary conversions Optional Condemnations FMV 100,000 A.B. 10,000 Gain 90,000 Has the option of not recognizing this gain by buying appropriate replacement property within the replacement period so he doesn't get taxed. The taxpayer has the rest of the current year plus 3 extra years to replace it.
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This note was uploaded on 09/08/2010 for the course BUS 123A at San Jose State University .

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Accting 123A 3ch14 - Chapter 14 Property transactions Gains...

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