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Flashcards in Taxes: Other Nonrecognition Transactions Deck (6)
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1

Taxes
Other Non-Recognition Transactions
Other Loss Disallowances
Wash Sales

Wash Sales
- sale of securities that occur near year-end
- not recognized if similar securities purchased within 30 days of sale
- apply only to losses, not gains
- adjusted basis equals cost plus deferred loss

2

Taxes
Other Non-Recognition Transactions
Other Loss Disallowances
Related Parties

Related Parties
- losses from sale to related parties not recognized
- deferred loses create "right of offset" which can be used to offset later gains but can't create loss
- holding period: begins on date of purchase
*** only time loss on personal use property is deductible is when personal casualty***

3

Taxes
Other Non-Recognition Transactions
Other Loss Disallowances
Short Sale

Short Sale
- transaction where taxpayer borrows and sells shares identical to those already owned
- essentially "marking to market"
- losses are deferred until short positions actually sold

4

Taxes
Other Non-Recognition Transactions
Other Loss Disallowances
Sale of Personal Residence

Sale of Personal Residence
- exclusion of gains from principle residence once every two years
- up to $250,000 if the ownership and use tests are met
- MFJ up to $500,000 on sale if:
- either meets ownership test
- both meet use test
- neither used on another residence in 2 years
- depreciation must be recaptured
- surviving spouse may exclude $500,000 up to 2 years after death of spouse
- not apply to extent a portion was not used a residence

5

Taxes
Other Non-Recognition Transactions
Other Loss Disallowances
Sale of Personal Residence
Ownership and Use Tests

Use Test
- owned by taxpayer principle residence for at least 2
- need not be continuous
- short or temporary absence ignored
Ownership Test
- 5 years
***if sold for changes in employment or health, max exclusion prorated for # qualifying months***
***home sales may result in capital gain***

6

Taxes
Other Non-Recognition Transactions
Other Loss Disallowances
Installment Sales

Installment Sales
- defers gains, not losses when payment made in later periods
- can elect to recognize gains currently
- prorates gain according to portion of cash received each year
- not taxpayers who are dealers
- all depreciation recognized in year one
- recognition of deferred gain is triggered by receipt of cash
- proportion of contract price
- gross profit = sales price - basis of asset sold
- recognized income: cash collected x (gross profit/contract price)
- contract price = cash from sale
- disposition of obligation will trigger recognition of gain

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