Cch Comprehensive Topics Chapter 10

Cch ComprehensiChapter 10 Questions 1-20 1. Distinguish between realised throws and wantes and recognized collects and losses. Realized gain or loss is the difference between the amount realized from the sale or other disposition of space and the correct stern at the prison term of sale or disposition. The amount realized is the sum of money received plus the fair market value of other keeping received. If a realized gain or loss is recognized the gain is includible and the loss is deductible in determining taxationable income.Thus, recognition means that the result of a specific transaction is considered to be nonexempt income or a deductible loss. Generally, recognition occurs at the time of sale or exchange. Therefore, realized gain or loss is the amount the owner incurred from ownership of the property, whereas recognized game is the taxable portion of the realized gain or loss. 2. How is the adjusted bottom of property determined? airplane pilot Basis + Capital Exp enditures Capital Returns= Adjusted Basis 3. List 3 capital additions or expenditures and 3 capital returns or recoveries and discuss the treatment of from each one category for tax purposes.Capital expenditures include improvements, betterments, acquisition costs, purchase commissions and legal costs for defending title. Capital returns include depreciation, depletion, amortization, tax-free dividends, deductible casualty losses, and insurance reimbursements. For tax purposes, capital expenditures movenot be deducted in the year in which they are paying or incurred and essential be capitalized. The general rule is that if the property acquired has a serviceable life longer than the taxable year, the cost must be capitalized.The capital expenditure costs are then amortized or depreciated over the life of the summation in question. Capital expenditures create or add fundament to the asset or property, which once adjusted, will determine tax liability in the return of sale or transfer. Capital Returns, on the other hand, proper adjustment shall be made to the extent of the amount allowed as deductions in computing taxable income under Code Section 1016 and to the extent that the amount results (beca ingestion of allowed deductions) in a reduction in any taxable year of the taxpayers taxes. . Why is apportionment of basis necessary? Allocation is necessary because some of the property may be depreciable and other property not depreciable. Different treatment may be necessary for the assets. It may also be that only some of the assets purchased are sold. 5. Are gains or losses from the sale or exchange of personal use assets recognized for tax purposes? The sale of a personal-use asset results in gain recognition but not loss recognition. 6. When is FMV of an asset used as the basis of an asset?If property is acquired in a taxable exchange, the basis of the property is generally its fair market value at the time of exchange. Also, if the price paid is a bargain purchase, then the basis of the property is its fair market value. 7. Whats the basis and holding accomplishment for nontaxable seam dividends? For nontaxable stock dividends, the basis of the original stock is allocated to the old and novel shares. The holding period begins on the leave of the original acquisition. 8. Whats the basis and holding period for taxable stock dividends?In the case of taxable stock dividends, the amount of income is the stocks fair market value at the date of distribution. The basis of the refreshful stock is its fair market value at the time of the receipt of the stock dividend and the basis of the old stock remains the same. The holding period of the new stock begins on the date of receipt of the stock dividend. 9. What is the basis and holding period for nontaxable stock rights? If nontaxable stock rights are received, whether or not any part of the basis of the stock is allocated to the rights depends on the FMV of the rights compared wit h the FMV of the stock.If FMV is less than 15% of the FMV of old stock at the time, basis of such rights is zero unless taxpayer elects to allocate. If value is 15% or more, basis must be allocated to the rights but only if rights are exercised or sold. The holding period runs from the date the original stock was acquired. 10. Whats the basis and holding period of taxable stock rights and the basis and holding period of the shares of stock if the rights are exercised? Amount of income and the basis of the rights constitute the FMV of the rights at the date of distribution, which is the date the holding period of the rights begin.If rights are exercised, basis of new shares = subscription price + basis of rights and holding period of new shares begins on date of exercise. Basis and holding period of old stock remain the same. 11. Whats the basis of gift property? A taxpayers original basis for gift property is the same as the propertys adjusted basis in the hands of the donor or the last preceding owner by whom it was not acquired by gift. However, if the propertys FMV at time of gift is less than adjusted basis to the donor, then basis for determining loss is the FMV at the time of the gift.CODE SECTION 1015 12. What adjustment, if any, must be made to the basis of property acquired by gift if gift was made prior to 1977? After 1976? For gifts made after 1976, basis is increased by the portion of gift that attributable to the net appreciation value of the gift. For gifts made before 1977, the full amount of gift tax is added to donors adjusted basis, but the basis may not be increased above the fair market value at the date of the gift. 13. Whats the basis of an asset acquired from a decedent?General rule is that the basis of property acquired from a decedent is the FMV of the property at the date of the decedents death. Commonly know as a step-up in basis. 14. Whats the alternative valuation of assets acquired from a decedent? If the executor elects for estat e tax purposes to value the decedents uncouth estate as of 6 months after death, the property is the FMV at that time. If property is distributed before the alternate valuation date, basis = FMB at the date of distribution or other disposition.The alternate valuation may be used only where the election will reduce both the value of the decedents crude estate and the federal estate tax liability. 15. Distinguish the holding period of assets acquired by gift w/ that of assets acquired from a decedent. The holding period of gift property begins with the date the property was acquired by the donor. If, however, the FMV of the property at the date of gift was less than the donors adjusted basis and the property is sold at a loss, the holding period begins on the date of the gift. The holding period of property acquired from a decedent is long-term. 6. How is the basis computed when a sale of shares of stock occurs? When a seller can identify the shares of stock sold or transferred, the basis is the basis of the stock so identified. Shares of stock are adequately identified if it can be shown that shares, which were delivered to the buyer, were from a lot acquired on a certain date or for a certain price. 17. When is the sale or exchange of stock or securities considered a wash sale? How is any loss treated? Wash gross sales occur when substantially identical stock is bought within 30 geezerhood before or after the sale.No deduction for losses is allowed on the sale of stock or securities if, within a period beginning 30 age before the date of sale and ending 30 days after the date of sale, substantially identical stock are acquired. CODE SEC. 109 18. Whats the basis of a personal use asset thats converted to business or income-producing use? When property purchased for personal use is converted to business or income-producing use, the basis for determining loss is the lessor of the FMV of the property at the time of conversion or the adjusted basis for loss at the time of the conversion.The basis for gain is the adjusted basis on the date of conversion. The basis for determining depreciation is the basis for determining loss. 19. What are the special rules for gains or losses on sales to related parties? No loss deduction is allowed on sales or exchanges of property, directly or indirectly, between related parties. Any losses disallowed, however, may be used to offset the gain realized by the related purchaser on a later sale of the property. Code Sec. 267 20. What are the benefits of installment reportage? The installment method allows gain to be spread over more than one year.