Assume the same facts as 2 except the taxpayer

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Assume the same facts as #2 except the taxpayer reinvested $25,000 in unimproved real estate. None of the $4,000 realized gain would be recognized. Taxpayer's basis in the new real estate would be $21,000 ($25,000 cost – $4,000 deferred gain). Holding Period —Holding period of the converted property carries over to the qualified replacement property. Form 6252 non-recognized losses Tax Forms for This Lesson : Form 6252 (available for download and printing from the lesson overview of your software). Other Loss Disallowances Overview There are three common provisions that mandate deferral of losses because of opportunities to manipulate taxes. The first, wash sales, are losses from the sales of securities that often occur near year-end. The second provision governs losses from the sale of business/investment property to related parties. In both cases, there is an attempt to recognize a loss without giving up control of the underlying asset. The third area relates to short sales of assets. 1.Wash Sales Losses from the sale of securities are not recognized if similar securities are purchased within 30 days of the sale. Definition A wash sale : A sale that results from the purchase of “substantially identical” stock or securities within a 30-day window around the sale date. The taxpayer takes an adjusted basis in the new securities equal to the cost plus the deferred loss from the wash sale. Holding period of the new stock or securities includes the holding period of the old stock or securities. Example TP sold 100 shares of XYZ stock on December 22 for $1,200. The stock had an adjusted basis of $2,000, and TP realized a loss of $800. If TP purchased 100 shares of XYZ on January 15 of the next year for $1,400, the loss on the December 22 sale would be deferred as a wash sale. The stock held by TP would have a basis of $2,200 ($1,400 plus $800). Note
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Note that the wash sale rules apply only to losses, not to gains . Note The “repurchase” of a security can occur either before or after sale of the original security— the 30-day period is a window centered on the sale date. The repurchase period is 61 days, the day of sale plus 30 days before and after this day . 2.Losses—Related Parties Losses from sales of business/investment property to related parties are not recognized. Note that losses from the sale of personal use property are never recognized. Definition Included in the definition of related parties are the following: Members of a family (spouse, children, grandchildren/descendants, parents, brothers and sisters, and grandparents/ancestors). An individual and a corporation in which the individual owns, directly or indirectly, more than 50% in value of the corporation's outstanding stock. A partner and a partnership in which the partner owns, directly or indirectly, more than 50% of the capital interests or profits interests in such partnership.
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  • Spring '17
  • Wendy Achiles
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