Chapter 10 - Property dispositions. In this chapter students will be able to: Calculate the amount of gain or loss recognized on the disposition of assets used in a trade or business, describe the general character types of gain or loss recognized on property dispositions, explain the rationale for and calculate depreciation recapture,. | Chapter 10 Property Dispositions Learning Objectives Calculate the amount of gain or loss recognized on the disposition of assets used in a trade or business Describe the general character types of gain or loss recognized on property dispositions Explain the rationale for and calculate depreciation recapture Describe the tax treatment of unrecaptured §1250 gains and determine the character of gains on property sold to related persons Describe the tax treatment of §1231 gains or losses, including the §1231 netting process Explain common exceptions to the general rule that realized gains and losses are recognized currently Dispositions Amount Realized Amount realized by a taxpayer from the sale or other disposition of an asset is everything of value received from the buyer less any selling costs Taxpayers typically receive cash when they sell property, they may also accept marketable securities, notes receivable, similar assets, or any combination of these items as payment Dispositions | Chapter 10 Property Dispositions Learning Objectives Calculate the amount of gain or loss recognized on the disposition of assets used in a trade or business Describe the general character types of gain or loss recognized on property dispositions Explain the rationale for and calculate depreciation recapture Describe the tax treatment of unrecaptured §1250 gains and determine the character of gains on property sold to related persons Describe the tax treatment of §1231 gains or losses, including the §1231 netting process Explain common exceptions to the general rule that realized gains and losses are recognized currently Dispositions Amount Realized Amount realized by a taxpayer from the sale or other disposition of an asset is everything of value received from the buyer less any selling costs Taxpayers typically receive cash when they sell property, they may also accept marketable securities, notes receivable, similar assets, or any combination of these items as payment Dispositions Adjusted Basis Original basis reduced by depreciation or other types of cost recovery deductions taken against the property Dispositions Realized Gain or Loss on Disposition The amount of gain or loss taxpayers realize on a sale or other disposition of assets is simply the amount they realize minus their adjusted basis in the disposed assets Dispositions Recognized Gain or Loss on Disposition Gains (losses) that increase (decrease) taxpayers’ gross income Taxpayers must immediately recognize the vast majority of realized gains and losses, they may be allowed to permanently exclude the gains from taxable income Character of Gain or Loss Ordinary Assets Assets created or used in a taxpayer’s trade or business Business assets held for less than a year Example – Inventory, Accounts Receivable, Machinery and Equipment If taxpayers sell ordinary assets at a gain, they recognize an ordinary gain that is taxed at ordinary rates If taxpayers sell ordinary assets at a loss, they deduct the loss
