TAX 4001 Exam 2 Cheet A - Chapter 7 Gain or loss is the...

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Chapter 7 Gain or loss is the difference between the amount realized from the sale or disposition and the property’s adjusted basis on the date of disposition. Amount Realized from a sale or disposition is the sum of any money received plus the fair market value of other property received. - Includes any real property taxes treated as imposed on the seller that are actually paid by the buyer. - Includes any liability on the property disposed of such as the mortgage debt if the buyer assumes the mortgage or property or the property is sold subject to the mortgage Realized vs. Recognized gain/loss – for tax purposes, gain or loss is the difference between the amount realized from the sale or disposition of property & property’s adj basis on the date of disposition. Amt realized includes: money received, FMV of property rcvd, real property taxes, any liabilities or property disposed of (mortgage) if buyer assumes. Deduct: selling expenses, commissions & legal fees. Adj basis on date of sale: cost + capital additives – capital recoveries (depreciation, losses (casualty), corporate dist, amort, bond premium, easements). Amt realized – less adj basis = gain or loss realized. Receipt of property or cash is boot. Receipt of boot triggers recognition of gain if there is realized gain. The amt of recognized gain is the lesser of the boot rcvd or the realized gain. Recognized: Amt of realized gain included in the taxpayer’s gross income. Amount Realized from a sale or disposition is the sum of any money received plus the fair market value of other property received. - Includes any real property taxes treated as imposed on the seller that are actually paid by the buyer. - Includes any liability on the property disposed of such as the mortgage debt if the buyer assumes the mortgage or property or the property is sold subject to the mortgage Example: Ridge sells an office building and the associated land on October 1, 2010. Under the terms of the sales contract, Ridge is to receive $600,000 in cash. The purchaser is to assume Ridge’s mortgage of $300,000 on the property. To enable the purchaser to obtain adequate financing, Ridge is to pay the $15,000 in points charged by the lender. The broker’s commission on the sale is $45,000. The purchaser agrees to pay the $12,000 in property taxes for the entire year. The amount realized by Ridge is calculated as follows: Selling price Cash $600,000 Mortgage assumed by purchaser 300,000 Seller’s property taxes paid by purchaser ($12,000 × 9/12) 9,000 $909,000 Less Broker’s commission $ 45,000 Points paid by seller 15,000 (60,000) Amount realized $849,000 Basis Allocation (e.g. lump-sum, stock dividend) – Generally the property’s cost. Cost is the amount paid for the property in cash or other property. This general rule follows logically from the recovery of capital doctrine; that is the cost or other basis of property is to be recovered tax-free by the taxpayer. A bargain purchase of property is an exception to the general rule for determining basis. Employer transfers property to an employee at less than the property’s fair market
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TAX 4001 Exam 2 Cheet A - Chapter 7 Gain or loss is the...

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