Chapter 12 Property Transactions. Issues: Realization, recognition, ordinary v. capital (character),...
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Transcript of Chapter 12 Property Transactions. Issues: Realization, recognition, ordinary v. capital (character),...
Chapter 12
Property Transactions
• Issues:
• Realization, recognition, ordinary v. capital (character), basis, cap gains rate
• Determination of Gain– Amount realized - Adjusted Basis= Gain or
Loss– Amount realized = money + FMV of property +
liabilities (assumed or subject to)
• Amount Realized = selling price – selling expenses
• Adjusted Basis = cost + capital additions - capital recoveries
Basis
• Usually cost• Allocations of purchase price• Basis of gift• Basis of inherited property• Conversion from personal use (lesser FMV/AB)• Disallowed Losses - Tax 2
– related taxpayers– wash sales
• Nontaxables Exchanges - Like Kind Exchanges 1031– Exchange, use, like-kind– boot = non like kind prop.– Basis = basis (given up) - $(boot rec’d) + gain
recog’d - loss recog’d (+ basis boot given up)– FMV (new prop) - postp’d gain + postp’d loss
• liabilities
• timing
• exchanger
• Involuntary Conversion -1033– definition– replacement property (similar or related in
service or use) (t/p use v. functional use)– time limit– basis
• Other Nonrecognition– Transfers between spouses incident to divorce
1041
• Sale of Residence - New Section121– loss v. gain– calculation of gain: Amt realized - basis = gain:
AR = selling price - selling costs– principal personal residence– basis of new property (cost now)– Section 121 modified 1997, 1998; 1034
repealed – form 2119 - Discontinued
Sale of ResidenceTaxpayer Relief Act of 1997
• Code Sec 1034 - rollover of principal personal residence gain-repealed
• Code 121 - exclusion (modified)
• 250000 exclusion
• 500000 exclusion if MFJ
• Effective
• Sales after 5/6/97:
• 5/7/97-8/14/97: election to apply new
• After 8/4/97: new applies unless elect out
• Owned by TP 2 of 5 yrs preceding
• Used by TP at least 2 of 5 (principal pers res)
• (Plus generally not use exclusion more frequently every 2 yrs)
• 2 yr Waiver: Ownership - changes in empl, health (proration) Use - Includes invol conversions
• If own <2 yrs, proportion of exclusion (98 law) (below)
• Joint return:
• Both must meet use, 1 ownership (for 500000)
• Neither used exclusion w/i 2 yrs prec (for 500000)
• If both spouses each sell 1 or 2 resids: 1 or 2 250000 in joint return (meet 2 and 5 yr tests)
• OR
• 250000 on each MFS
Sale of prin residence Relief Provision• 97 law (new section 121) - Gen Reqs -
Recap:
• prop owned and used 2 years (as prin resid) in 5 year period
• 5 yr window - prop need not be prin resid date of sale
• only exclude once every 2 years
Relief Provision(IRS R&R Act 1998)
• Once every 2 years waived - special circs
• change in employment or health reasons
• or unforeseen circs (regs)
• fraction # qualifying months (owned & used) 24 mos
• Times the exclusion (250,000 or 500,000) (5/6/97)
Sale of Prin Resid - Exclusion - Married Couples (97 & 98 Law)
• 97 law - MFJ can use 500, 000 exclusion if
1) either spouse own resid 2 of last 5
2) both spouses use 2 of last 5
3) neither spouse has used exclusion within last 2 yrs
• 97 law - spouses can separately qualify for 250,000 each on own residences MFJ or MFS
98 law (clarification)
• Can separately qualify 250,000 each on joint residence
• if 1 spouse fails any of 3 conditions, 250,000 applies for each (as if unmarried) (joint)
• and, in this situation each spouse is treated as owning during the 2 yr period that either owned (interesting)
Basis of Property from a Decedent EGTRRA ‘01
• Because of Estate Tax repeal in 2010
• 2010: modified carryover (instead of step up to FMV
• Lesser of AB of decedent or FMV DOD
• No 6 month alter note valuation
Basis of Property from a Decedent EGTTRA ’01 (cont)
• Executor can step basis 1.3 m (plus certain unused capital, net op, built-in losses
• And step up an additional 3 m for property passing to the surviving spouse