34 specific types of income income from property

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Specific types of income Income from property – exceptions if personal use : 1. When capital asset  personal residence After $250k ($500k) exclusion, the remainder is taxed at the appropriate capital gains rate: Not a high income taxpayer rate? 15% High income taxpayer rate? 20% Capital loss if personal use? Generally, not deductible – some possibilities when you convert to business use (rental property) 35
Specific types of income Income from property – general rules if investment use : 1. Other capital asset  investment use (e.g. stocks, bonds  more Chapter 7 – full material not covered): Capital gain = realizable income – adjusted tax basis Applicable 15% (not high income) or 20% (high income ) Capital loss  if investment use – first, offset any capital gain, if any left (exceeds capital gains) can deduct $3k of net capital loss if an individual in current year and carryforward the remainder to offset future capital gains indefinitely. We’ll cover more on the netting process on the sale of multiple capital assets in a single year in Ch. 7 and 11. 36
Specific types of income Income from property – exceptions if investment use : 1. Other capital asset  investment in municipal bonds (e.g. bond from the state , city , or county of…. (usually state and local governments)): Capital gain: Realizable income – adjusted tax basis Gain excluded from income BUT! Interest from a U.S. (not local) government obligation (like U.S. Treasury bills) is taxable for federal income purposes. 37
Specific types of income Income from property – general rules if business use : 1. Other capital asset  long-term trade or business use (e.g. lawn mower from mowing service company): Capital gain (loss) = realizable income – adjusted tax basis We’ll go into a lot of detail on this in Chapter 11 . These often qualify as Sec. 1231 assets where some portions are treated as capital gain/loss and some is treated as ordinary income/loss. 38
Specific types of income Income from property – general rules if business use : 1. Sales of other asset ( not a capital asset ) (e.g. A/R, inventory, assets used in business)  generally treated as ordinary income or loss as part of business 39
Specific types of income Income from other sources : Flow through entities Alimony and child support Prizes, awards, and gambling Imputed income Discharge of indebtedness NOTE: You don’t need to know about taxation of social security benefits for our coverage of this chapter. 40
Specific types of income Income from other sources : You may not have your own business but you invest in other businesses. You own stock in a C corporation (like public company stocks on the New York Stock Exchange) – No recognized income with fluctuations in stock price Only recognize income when – transaction between parties: Dividends paid to you (taxed at ordinary income tax rate) OR You sell the stock (capital gain/loss as investment asset) 41
Specific types of income Income from other sources : You may not have your own business but you invest in other businesses.

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