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Chapter 11

Property Transactions: Nonrecognition of Gains or Losses
(Rev 08-1-11)

Taxable income generally includes gain from the sale or exchange of property.   To deduct losses you must rely on statutory permission.

Gains - Gains are taxed on any disposition of property, generally, whether by sale, exchange, or other means of disposition.

Recognition - Recognition refers to when/if you include the gain in your taxable income.

Sometimes Gain on sale may be

    • Deferred:

        o Temporarily not recognized.
        o Examples include exchanges of business property for like kind business property, involuntary conversions and certain stock swaps.

    • Excluded

        o Permanently not recognized.
        o Examples include sales of personal residences and appreciation up to date of death on inherited property.

Sale of Personal Residence (Code Section 121)

    • Rules effective for home sales after May 6, 1997.

Taxpayers may exclude gain from the sale of their principal residence:

    • $250,000 of gain if single, or
    • $500,000of gain if married filing jointly.

To qualify, taxpayers must:

    • Have owned the house two of the last five years,
    • Have occupied the home as their principal residence two of the last five years.
Other Rules

    • This exclusion may be only used once every two years.

    • The basis of the new house is not reduced by the gain excluded.

    • You may elect out of this provision and pay tax on the gain if you wish.

    • Gains over excluded amount are taxable and may not be “rolled over” like in prior law.

    • You may not use the exclusion within five years of acquiring the property through a ‘like kind’ (Section 1031) exchange.

Special Rules for married taxpayers

The exclusion is allowed if:

    • Both meet the USE test, but
    • Only one meets the OWNERSHIP test.

BUT, neither has used their principal residence exclusion in a prior sale within...

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Business. Anti Essays. Retrieved December 16, 2018, from the World Wide Web: http://parimatch-stavka7.com/free-essays/Business-169481.html


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