Fundamentals of Taxation

When the buyer assumes the seller's liability,the seller includes this amount in computing the amount realized from the sale.

The forms used to report a gain or loss on the sale of an asset depend on the classification of the asset being sold rather than on how the asset was used prior to sale.

Property owned by a taxpayer and used either for personal purposes,investment,or in a trade or business is a capital asset.

A computer used exclusively in a sole proprietor's business is a capital asset.

Real property held for investment is a capital asset.

Inventory on hand at the end of the year is Section 1231 property.

Section 1202 allows for an exclusion of up to 50% of the eligible gain on the sale or exchange of qualified small business stock if held for more than one year.

The donee's basis in depreciated property when the FMV at the time of the gift is less than the donor's basis)is FMV at the time of the gift.

The holding period for property acquired by inheritance begins on the date of the decedent's death.

The holding period of an asset starts on the date acquired and ends on the day the asset is sold.

Short-term capital losses first reduce 28% gains,then 25% gains,and if any loss remains,the 20%,15% or 0% group.

Currently,the maximum capital gain rate applied to a taxpayer in the 15% regular tax bracket is 0%.

Unused capital losses in any one year carry forward indefinitely to offset any future short-term or long-term gains.

To qualify as Section 1231 property,the property must be used in a taxpayer's trade or business and must be held for more than one year.

If Section 1231 losses exceed Section 1231 gains,the excess is treated as an ordinary loss.

The purpose of Code Sections 1245 and 1250 recapture provisions is to restrict the possibility of converting ordinary income into capital gains through use of depreciation deductions.

If the taxpayer's aggregate Section 1231 gains for the year exceed aggregate Section 1231 losses for the year,all such gains and losses are considered to be ordinary.

If a taxpayer has a net Section 1231 loss for the year,all Section 1231 gains and losses are treated as being capital gains and losses.

If the property's fair market value at the date of the gift is lower than the adjusted basis,then the property's basis for determining loss is its fair market value on that date.

The basis of inherited property to the beneficiary is the FMV at the date of death or alternate valuation date.