Taxation_504[1] - Taxation 504 6.1 Rules of disposition of...

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Taxation 504 6.1 Rules of disposition of property 1. determine gain/loss from property: --- not tax on entire sales, only taxed on gain, constitutional reasons for this -- if you have a loss, you can get reimbursed? Terms: 1. amount realized = net sales price aka. Selling cost 2. basis = what is cost to get/ buy the asset 3. adjusted basis = your original basis + adjustments Basis amount realized +/- adjustments --------- - adjusted basis Adjusted basis gain/loss 2. what circumstance increase/ decrease tax income? Gain---2 requirements; loss----3 requirements a. gain and loss must be realized b. gain and losses must be recognized c. losses must be a provision allowing a deduction for that loss general rule: -- realization? You need a type of identifiable event that changes the investment in asset—as oppose a more fluctuation of value identifiable events -- identifiable events? 1. sale or exchange of asset changes it 2. abandonment, causality --even though exchange, it might not be a realization event. Property must differ in extent. ---point: assume exchange= realization unless asset if fungible [fungible: the assets are different, but so much alike that they are indistinguishable -- recognition? Gain and loss realized will be recognized unless exception [exception: (fund in code) non recognized transactions] Amount realized : 1. How do you calculate? Five components: 1. cash received (us dollars) 2. fair market value of other property received
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3. liabilities of seller assumed by purchaser: ex of assumed liabilities: mortgages, property tax (buy property with unpaid property tax), tax attached to land, condo charges 4. liabilities owe to the seller by purchaser as a result of transactions 5. selling expenses (subtract) expense that affect/make transaction happen: ex: lawyer fees, not include fix up cost FMV: price which a willing buyer and willing seller agree to if neither under compulsion to buy/sell and each sufficient information to make decisions 2. who has the burden of proof to determine value? 4 possibilities a. practical: you don’t have an answer but the irs does, if court finds that reasonable then that’s the value b. installment sale rules, annuity rules, tax law can force an answer c. philly park cases that can provide answer: if you can’t value what you receive, assume it’s equal in value what you gave up d. rare circumstance: apply open transaction method 3. open transaction method (OTM) Concept: keep transaction open, don’t keep exchange as its over -- treat the 1 st payment as reduction of basis, after you’ve gotten the entire basis, the rest after= gain -- if at some point, you stop getting payments and haven’t gotten the entire basis- treat as loss Adjusted basis= original basis+/- adjustments Original basis= typical cost basis aka. Cost to purchase asset Theory: you put money into getting the asset, you should that money before paying taxes 4. how to compute cost basis? Cost basis is basically a mirror image of amount
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This note was uploaded on 03/07/2012 for the course LUBIN 649, 504, taught by Professor Bernet,antoninio,gazzar during the Spring '12 term at Pace.

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Taxation_504[1] - Taxation 504 6.1 Rules of disposition of...

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