the property was acquired or disposed of. Gains are recognized on sales involving property used for business or income-producing purposes or for 16. personal purposes. Increases in basis decrease the amount of gain realized or increase the amount of realized loss. 17. Depreciation, depletion, amortization, and acquisition costs are all capital returns. 18. Recognition of a gain or loss always occurs at the time of sale or exchange. 19.
538 CCH Federal Taxation—Basic Principles Chapter 10 © 2010 CCH. All Rights Reserved. The fair market value of taxable stock rights at the date of distribution represents both the amount of 20. income and the basis of the rights. The basis of property acquired from a decedent is the fair market value of the property at the date of receipt 21. of the property. There is a basis adjustment for estate taxes paid on property acquired from a decedent that is similar to the 22. gift tax adjustment of gifted property. Unless the taxpayer can speci fi cally identify the shares of stock that are sold or transferred, the FIFO rule 23. comes into play (i.e., the stock sold is charged against the earliest of the stock purchases). Gains and losses resulting from mere appreciation or decline in value are unrealized gains and losses, and 24. are not included in the calculation of taxable income. All costs necessary to get depreciable property in place and ready for use are deductible in the year in 25. which they are paid or incurred. For purposes of the related party rules, the taxpayer’s parents are “related persons,” but the taxpayer’s 26. siblings (brothers and sisters) are not. The wash sale rules merely postpone the loss until the taxpayer sells the securities in a nonwash sale 27. transaction. Elizabeth Eason constructed an asset to be used in her business—a sole proprietorship. The basis she 28. used for the fi nished asset should include the employee compensation for the work attributable to the construction of the asset. Dan Danielson bought 100 shares of stock on October 20, 2010. On December 23, 2010, Dan died and his 29. son David inherited the stock. David’s basis in the stock is the fair market value at the time of Dan’s death. Property converted to business use is sold. The adjusted basis of the property at the time of conversion is 30. used to determine the gain. Stanley Summers purchased a personal residence for $185,000 and spent $5,000 for the cost of obtaining a 31. mortgage. Stanley’s basis in the home is $190,000. Isabella Iverson bought a new car for $17,500. She received a rebate from the manufacturer in the amount 32. of $1,000. Her basis in the car is $17,500. John Johnson sold his hot dog stand at a loss to his brother. The loss is deductible by John. 33. Marcia Marks received as a wedding present from an old friend a gold necklace worth $22,000. The 34.
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