Chapter 5 Property Transactions Capital Gains and Losses
Chapter 5 Property Transactions: Capital Gains and Losses
Learning objectives o Determine the realized gain or loss from the sale or other disposition of property Determine the amount realized from the sale or other disposition of property Determine the basis
Learning Objectives • Determine the realized gain or loss from the sale or other disposition of property • Determine the amount realized from the sale or other disposition of property • Determine the basis
Learning objectives Distinguish between capital assets and other assets Understand how capital gains and losses affect taxable liom Recognize when a sale or exchange has occurred Determine the holding period for an asset when a sale or disposition occurs
Learning Objectives • Distinguish between capital assets and other assets • Understand how capital gains and losses affect taxable income • Recognize when a sale or exchange has occurred • Determine the holding period for an asset when a sale or disposition occurs
Determination of Gain Or Loss Realized gain or oss Amount realized S less the assets adjusted basis
Determination Of Gain Or Loss • Realized gain or loss – Amount realized $ less the assets’ adjusted basis
Determination f (Gains And losses Amount realized consists of money and FMv of property received plus taxpayer's debt assumed by the buyer less costs of sale
Determination Of Gains And Losses • Amount realized consists of money and FMV of property received plus taxpayer’s debt assumed by the buyer less costs of sale
Determination of Basis Original basis(Cost) t plus additions (eag Capital improvements) less reductions (ieny Depreciation) =u = Adjusted basis
Determination Of Basis Original basis (Cost) + plus additions (i.e., Capital improvements) - less reductions (i.e., Depreciation) = Adjusted basis
Recognized Gain Or LOSs The amount of recognized gain or loss on disposition may be less than the realized gain or loss due to special statutory provsions Like-kind exchange rules o Involuntary conversions rules
Recognized Gain Or Loss • The amount of recognized gain or loss on disposition may be less than the realized gain or loss due to special statutory provisions • Like-kind exchange rules • Involuntary conversions rules
Basis considerations In most cases the cost off acquired property is the basis
Basis Considerations In most cases the cost of acquired property is the basis
Basis considerations Original cost basis includes ash FMV of other property ●Debt Transactional cost Uniform capitalization rules are mandated for inventory
Basis Considerations • Original cost basis includes • Cash • FMV of other property • Debt • Transactional cost • Uniform capitalization rules are mandated for inventory
Basis considerations Construction period interest and taxes must be capitalized for certain “ long useful life” property Homogenous property Specific identification may not be possible Tax law requires a FIFo approach
Basis Considerations • Construction period interest and taxes must be capitalized for certain “ long useful life” property • Homogenous property – Specific identification may not be possible – Tax law requires a FIFO approach
