PH5ky412

PH5ky412 - CHAPTER 5 PROPERTY TRANSACTIONS MODEL FOR GAINS...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: CHAPTER 5 PROPERTY TRANSACTIONS MODEL FOR GAINS AND LOSSES A. AMOUNT REALIZED B. LESS: ADJUSTED BASIS EQUALS: REALIZED GAIN/LOSS LESS: Tax-free gain/Disallowed loss LESS: Postponed gain/loss EQUALS: RECOGNIZED GAIN/LOSS Money received C. ORIGINAL BASIS Plus: Liabilities on disposed Plus: Capital additions 1 property discharged to buyer Less: Capital recoveries 2 Plus: FMV of other property received B. EQUALS: ADJUSTED BASIS Plus: Real property taxes paid by buyer Less: Money paid Less: Selling expenses Less: Liabilities assumed by seller A. EQUALS: AMOUNT REALIZED C. ORIGINAL BASIS - depends on how asset was acquired (see following pages) 1 add value to asset, extend asset's life, or adapt asset for new or different use. 2 depreciation, casualty losses, corporate distributions in excess of Earnings and Profits, and amortizable bond premiums. C. ORIGINAL BASIS C1. PURCHASE-- BASIS = Cost--cash paid or FMV of property given (includes all costs necessary to get asset to its state of readiness). ORIGINAL COST BASIS PROBLEMS ASSOCIATED WITH PURCHASES 1. Identification Problems-- Identification of cost may be difficult if a taxpayer has multiple homogeneous assets. For example, if a taxpayer owns identical shares of stock in a corporation that were acquired in more than one transaction and sells less than his or her entire investment in that stock, it is necessary to identify which shares are sold. For tax purposes, the owner must use the FIFO method of identification if it is impossible to identify which shares were sold. Purchased Cost 50 shares 1/10/08 $5,500 75 shares 8/15/08 9,000 40 shares 6/18/09 4,600 Assume Taxpayer sold 60 shares in 2011 for $8,700. Assume Taxpayer sold 60 shares in 2011 and identified them by certificate number and date of purchase as shares purchased on 8/15/08. 2. Allocation Problems--General When several assets are purchased at a lump-sum price (basket purchase) it is necessary to allocate individual prices based on the relative FMV of the individual assets. Assume that Taxpayer purchased land with a building on it for $100,000 at a time when the land has a FMV of $75,000 and the building has a FMV of $175,000. Determine the tax basis of these properties. 3. Allocation ProblemsCommon Costs Using the above example, assume the closing costs associated with this real estate transaction totaled $10,000. Determine the allocation of these costs. 4. Allocation Problems--Stock Dividends Common on Common--Divide the total cost by the new number of shares after the stock dividend to determine the new basis per share. If Taxpayer holds 100 shares of common stock for which he/she paid $5,000, and receives a 25% common stock dividend, the basis of the shares after the dividend is $40/share. Preferred on Common--Allocate the total cost between common and preferred stock in a similar fashion as was done in example #2 above with the building and land....
View Full Document

Page1 / 24

PH5ky412 - CHAPTER 5 PROPERTY TRANSACTIONS MODEL FOR GAINS...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online