Tax 4001 - Exam 3 Chapter 13
Determination of gain or loss - ANS-The sale or other disposition of property triggers
realization of gain (loss)
Gain (Loss) Realized - ANS-Amount Realized - Adjusted Basis = Gain/Loss
Amount Realized > Adjusted Basis -> Realized Gain
Amount Realized < Adjusted Basis -> Realized Loss
Amount Realized - ANS-a measure of the economic value received for property given
up
Adjusted Basis - ANS-Cost basis + Capital additions - Capital Recoveries
Capital Additions - ANS-cost of improvements and betterments to the property that are
capital in nature and NOT currently deductible
Capital Recoveries - ANS-Amount of basis recovered through...
Depreciation or cost recovery allowances
Casualty and theft losses (and insurance proceeds)
Certain corporate distributions
Amortizable bond premium
Easements
Certain Corporate Distributions - ANS-nontaxable corporate distributions reduce the
sharehodler's stock basis
once the stock basis is reduced to zero, excess distributions are capital gains
Amortizable bond premium - ANS-Investors in taxable bonds may elect to amortize the
premium as an interest deduction over the life of the bond
investors in tax-exempt bonds are required to amortize the premium over the life of the
bond (with no annual interest deduction)
Recognized Gain or Loss - ANS-
Recognized Gain - ANS-Reported on the tax return
, Recognized loss - ANS-- generally full reported on the tax return
- Limitations on capital losses
- Exclusions on losses from personal use property
Nonrecognition of Gain or Loss - ANS-
Gains (Losses) Non recognition - ANS-May be deferred to a later period o permanently
excluded from income
- Sale, exchange, or condemnation of personal use assets
* Realized LOSSES are generally not recognized
* Exception: casualty/theft losses
* Realized GAINS are generally recognized
Realized losses for Sale, Exchange, or Condemnation of Personal Use Assets -
ANS-Generally not recognized
* exception: Casualty/theft losses
Realized Gains for Sale, Exchange, or Condemnation of Personal Use Asset -
ANS-Generally recognized
Determination of cost basis - ANS-
Cost Basis - ANS-Basis = Cost
exception: In a bargain purchase, the asset's basis = FMV
Bargain amount may be income to purchaser (e.g. employee - compensation;
shareholder = dividend)
Identification Problems - ANS-Partial sale of stock acquired through multiple
transactions
* TP must use FIFO method of identification
Allocation Problems - ANS-Must allocate basis to each asset obtained
lump-sum purchase
* to determine assets' basis: allocate purchase price based on relative FMV of assets
* If goodwill is involved:
- Assign purchase price to assets to extent of their total FMV
- Then allocate among assets based on relative FMV
- Residual amount is goodwill
* Goodwill is an amortizable asset
Determination of gain or loss - ANS-The sale or other disposition of property triggers
realization of gain (loss)
Gain (Loss) Realized - ANS-Amount Realized - Adjusted Basis = Gain/Loss
Amount Realized > Adjusted Basis -> Realized Gain
Amount Realized < Adjusted Basis -> Realized Loss
Amount Realized - ANS-a measure of the economic value received for property given
up
Adjusted Basis - ANS-Cost basis + Capital additions - Capital Recoveries
Capital Additions - ANS-cost of improvements and betterments to the property that are
capital in nature and NOT currently deductible
Capital Recoveries - ANS-Amount of basis recovered through...
Depreciation or cost recovery allowances
Casualty and theft losses (and insurance proceeds)
Certain corporate distributions
Amortizable bond premium
Easements
Certain Corporate Distributions - ANS-nontaxable corporate distributions reduce the
sharehodler's stock basis
once the stock basis is reduced to zero, excess distributions are capital gains
Amortizable bond premium - ANS-Investors in taxable bonds may elect to amortize the
premium as an interest deduction over the life of the bond
investors in tax-exempt bonds are required to amortize the premium over the life of the
bond (with no annual interest deduction)
Recognized Gain or Loss - ANS-
Recognized Gain - ANS-Reported on the tax return
, Recognized loss - ANS-- generally full reported on the tax return
- Limitations on capital losses
- Exclusions on losses from personal use property
Nonrecognition of Gain or Loss - ANS-
Gains (Losses) Non recognition - ANS-May be deferred to a later period o permanently
excluded from income
- Sale, exchange, or condemnation of personal use assets
* Realized LOSSES are generally not recognized
* Exception: casualty/theft losses
* Realized GAINS are generally recognized
Realized losses for Sale, Exchange, or Condemnation of Personal Use Assets -
ANS-Generally not recognized
* exception: Casualty/theft losses
Realized Gains for Sale, Exchange, or Condemnation of Personal Use Asset -
ANS-Generally recognized
Determination of cost basis - ANS-
Cost Basis - ANS-Basis = Cost
exception: In a bargain purchase, the asset's basis = FMV
Bargain amount may be income to purchaser (e.g. employee - compensation;
shareholder = dividend)
Identification Problems - ANS-Partial sale of stock acquired through multiple
transactions
* TP must use FIFO method of identification
Allocation Problems - ANS-Must allocate basis to each asset obtained
lump-sum purchase
* to determine assets' basis: allocate purchase price based on relative FMV of assets
* If goodwill is involved:
- Assign purchase price to assets to extent of their total FMV
- Then allocate among assets based on relative FMV
- Residual amount is goodwill
* Goodwill is an amortizable asset
