Term
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Definition
Cost Basis of Property
a) In General- The basis of property shall be the cost of such property |
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Term
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Definition
Determination of amount and of recognition of gain or loss
a) The gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in such section for determining loss over the amount realized. |
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Term
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Definition
Capital Asset
a) For purposes of this subtitle, the term “capital asset” means property held by the taxpayer, but does not include
1) stock or property held primarily for the sale to customers in one's trade or business
2) Property subject to 167 business or trade depreciation
3) Intellectual Property
4) Accounts or notes receivable acquired in the ordinary course of business
5) U.S. government publications
6) Commodities derivative
7) Hedging transactions
8) supplies used in the ordinary course of a trade or business |
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Term
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Definition
Treatment of amounts received on retirement or sale or exchange of debt instruments
a) In general
(1) Retirement--Amounts received by the holder on retirement of any debt instrument shall be considered as amounts received in exchange therefor. |
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Term
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Definition
Transfers of property between spouses or incident to divorce
(a) In General, no gain or loss shall be recognized on a transfer of property from an individual to (or in trust for the benefit of)—
(1) a spouse, or
(2) a former spouse, but only if the transfer is incident to the divorce. |
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Term
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Definition
Transferred Basis of a Gift
the basis of the transferee in the property shall be the adjusted basis of the transferor.
(c) Incident to divorce
For purposes of subsection (a)(2), a transfer of property is incident to the divorce if such transfer—
(1) occurs within 1 year after the date on which the marriage ceases, or
(2) is related to the cessation of the marriage. |
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Term
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Definition
| Basis of Property Acquired by gifts and transfers in trusts |
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Term
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Definition
Holding Period of Property
It has to be held longer than a year to gain favorable LTCG tax treatment
A TP can "tack on" the holding period of a previous owner if it was received as a 102 Gift |
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Term
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Definition
Basis of Property Received from a Decedent
a) (Stepped up basis) In general the Basis of Property received because of a death, if not sold, exchanged, or otherwise disposed of before the decedent’s death by such person, is the FMV of the property at the time of death
**e) property given away and then received back within 1 year from a decedent will not be stepped up |
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Term
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Definition
Maximum Capital Gains Rate
If a taxpayer has a net capital gain for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of—
(A) a tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of—
(i) taxable income reduced by the net capital gain; or
(ii) the lesser of—
(I) the amount of taxable income taxed at a rate below 25 percent; or
(II) taxable income reduced by the adjusted net capital gain;
(B) 5 percent (0 percent in the case of taxable years beginning after 2007) of so much of the adjusted net capital gain (or, if less, taxable income) as does not exceed the excess (if any) of—
(i) the amount of taxable income which would (without regard to this paragraph) be taxed at a rate below 25 percent, over
(ii) the taxable income reduced by the adjusted net capital gain;
(C) 15 percent of the adjusted net capital gain (or, if less, taxable income) in excess of the amount on which a tax is determined under subparagraph (B);
(D) 25 percent of the excess (if any) of—
(i) the unrecaptured section 1250 gain (or, if less, the net capital gain (determined without regard to paragraph (11))), over
(ii) the excess (if any) of—
(I) the sum of the amount on which tax is determined under subparagraph (A) plus the net capital gain, over
(II) taxable income; and
(E) 28 percent of the amount of taxable income in excess of the sum of the amounts on which tax is determined under the preceding subparagraphs of this paragraph. |
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Term
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Definition
Limitation on Capital Losses
(a) Corporations--In the case of a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from such sales or exchanges.
(b) Other taxpayers--In the case of a taxpayer other than a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of the gains from such sales or exchanges, plus (if such losses exceed such gains) the lower of—
(1) $3,000 ($1,500 in the case of a married individual filing a separate return), or
(2) the excess of such losses over such gains. |
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Term
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Definition
Election to Expense Certain Depreciable Business Assets
1)(b) The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed |
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Term
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Definition
Adjustments to Basis
In general, proper adjustment in respect of the property shall in all cases be made (1) for expenditures, receipts, losses, or other items, properly chargeable to capital account |
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Term
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Definition
Worthless Securities
In general, if any security which is a capital asset becomes worthless during the taxable year, the loss resulting therefrom shall, for the purposes of this subtitle, be treated as a loss from the sale or exchange, on the last day of the taxable year, of a capital asset. |
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Term
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Definition
Bad Debts
Wholly Worthless Debts--there shall be allowed as a deduction any debt which becomes worthless within the taxable year
Partially worthless debts--When satisfied that a debt is recoverable only in part, the Secretary may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction |
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Term
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Definition
Installment Method
Installment sale means a disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs
Installment method means a method under which the income recognized for any taxable year from a disposition is that proportion of the payments received in that year which the gross profit bears to the total contract price |
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Term
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Definition
Nonrecognition of Gain or loss from Exchanges solely in kind
In general, no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to held either for productive use in a trade or business or for investment
Exceptions: This does not apply to exchange of-Stock in trade or other property held primarily for sale, stocks bonds or notes, other securities or evidences of indebtedness or interest, interests in a partnership, certificates of trust or beneficial interests, or choses in action |
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Term
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Definition
Depreciation
There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (1) of property used in the trade or business, or (2) of property held for the production of income
§168 lays out the depreciation method |
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Term
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Definition
Annuity Exclusion Ration
Gross income does not include that part of any amount received as an annuity under an annuity, endowment, or life insurance contract which bears the same ration to such amount as the investment in the contract bears to the expected return under the contract |
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Term
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Definition
Injured goodwill is excluded from gross income to the extent that it is compensating for lost value--Raytheon (if it was originally purchased it can be depreciated §197 (Amortization of goodwill))
Usually, lost wages are taxed to the full amount because they would have been received had one not been fired--Raytheon But they are if they are connected to a physical injury--Rev. Ruling 85-97
§104 medical expenses are excluded
Punitive Damages are includable in gross income unless provided by state statute (§104(c)(1))
Awards received as a result of physical injury are excluded from GI
Excluded if they arise from a tort action of negligence--§104(a)(2) |
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Term
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Definition
Alimony
1)Cash Payments
2) received by one spouse under a divorce or separation instrument
3) that is not designated non-taxable income
4) received when the spouses are not members of teh same household
5) that will cease when the payee spouse dies |
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Term
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Definition
Recapture
If alimony payments are front-loaded they can be subject to recapture |
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Term
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Definition
Hobby Factors
1) Manner in which the TP carries on the activity--Do they keeps complete and accurate books?
2) the expertise of the TP or his advisors--Prep. w/ professional consultation?
3) Time and effort expended by TP in carrying on the activity
4) Expectation that assets used in activity may appreciate in value
5) the success of the TP in carrying on other similar or dissimilar activities
6) The TP's history of income or losses with respect to the activity
7) The amount of occasional profits, if any which are earned
8) The financial status of the TP
9) Elements of personal pleasure or recreation |
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Term
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Definition
| The amount of a mortgage is included when determining 1012 cost basis--it doesn't matter whether it's nonrecourse debt or a standard mortgage |
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Term
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Definition
| equipment or other moveable tangible property used in a trade or business that TP has previously taken a 167 or 179 depreciation deduction is recapture. Previous deductions are added to the ordinary income of a TP. |
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Term
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Definition
The term “section 1231 gain” means—
(i) any recognized gain on the sale or exchange of property used in the trade or business, and
(ii) any recognized gain from the compulsory or involuntary conversion (as a result of destruction in whole or in part, theft or seizure, or an exercise of the power of requisition or condemnation or the threat or imminence thereof) into other property or money of—
(I) property used in the trade or business, or
(II) any capital asset which is held for more than 1 year and is held in connection with a trade or business or a transaction entered into for profit. |
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Term
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Definition
| Insurance proceeds-->subject to exclusion ratio similar to that of an annuity except it can continue beyond the proposed life of the contract |
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Term
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Definition
| If state law provides that punitive damages are the only award one can receive for wrongful death, they can be excluded |
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Term
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Definition
| Company sold off bonds, and then bought a number of them back at less than par value--The commish said this was a realization of gain as it was essentially a discharge of indebtedness |
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Term
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Definition
Accelerated Cost Recovery System
Outlines how the §167 depreciation deduction will be taken by defining:
(1) the applicable depreciation method,
(2) the applicable recovery period, and
(3) the applicable convention. |
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Term
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Definition
1) A debt for which the TP is liable, Or
2) subject to which TP holds property
Zarin--Chips were a medium of exchange and unenforceable under NJ law ->Not a bona fide debt |
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Term
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Definition
| The sale of a residence can be excluded from ordinary income if it has been used for 2 out of the last 5 years as the principle residence |
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Term
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Definition
Involuntary conversion
A type of Nontaxable exchange where TP does not have to recognize gain if certain property is involuntarily converted.
A process where a taxpayer is involuntarily forced to dispose of property that has been stolen, condemned, destroyed or repossessed, and another piece of property or cash is received in lieu of the property. |
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