2010_CCH_Essentials_Chapter_10 - CCH Essentials of Federal...

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Chapter 10 Property: Basis and Nontaxable Exchanges ©2009 CCH. All Rights Reserved. 4025 West Peterson Ave. Chicago, IL 60646-6085 www.CCHGroup.com CCH Essentials of Federal Income Taxation
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CCH Essentials of Federal Income Taxation 2 of 22 Realized Gain or Loss Realized gain (loss) = Amount realized – Adjusted basis Chapter 10
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CCH Essentials of Federal Income Taxation 3 of 22 Adjusted Basis Initial basis in property + Capital additions Capital recoveries = Adjusted basis Chapter 10
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CCH Essentials of Federal Income Taxation 4 of 22 Capital Additions Some examples of improvements include: Installing a new furnace Putting up a fence Paving a driveway Rebuilding an engine in a car Landscaping Building a recreation room in an unfinished basement Paying special assessments for sidewalks, roads, etc. Adding a room onto a house Chapter 10
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CCH Essentials of Federal Income Taxation 5 of 22 Capital Recoveries Capital recoveries are a return of the taxpayer’s investment in property. They occur when taxpayers receive money or take deductions in connection with the property. Any time taxpayers recover part of their investment in property prior to disposing of it, they must reduce their basis in the property accordingly. Chapter 10
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CCH Essentials of Federal Income Taxation 6 of 22 Initial Basis Property acquired by purchase Property received from a spouse Inherited property Gifted property Property converted to business or rental use Special rules for stock ownership Return-of-capital Chapter 10
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CCH Essentials of Federal Income Taxation 7 of 22 Basket Purchases FMV of the property Initial basis = Purchase price × FMV of all properties Chapter 10
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CCH Essentials of Federal Income Taxation 8 of 22 Donee’s Initial Basis in Gifted Property a gain, donee’s basis = donor’s basis a loss, donee’s basis = FMV at time of gift no gain or loss, donee’s basis = amount realized When FMV donor’s basis, Donee’s basis = Donor’s basis + Percentage of the gift tax Percentage for pre-1977 gifts: 100%
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