Chapter 5 Property Transactions: Capital Gains and Losses 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 e 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 loss Amount realized $ less the assets’ adjusted basis 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) + plus additions (., Capital improvements) less reductions (., 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 provisions Like-kind exchange rules Involuntary conversions rules Basis Considerations In most cases the cost of acquired property is the basis. 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
