Chapter 11

BASIS is amount you took out of pocket to pay for asset

SP 200 – Cost 100 = +100

Amt Realized (p11-2) = (value) ex. FMV of Property, FMV of services, and debt relief Person gives you computer for car, or paints house etc. Sell car for 12,000, owe 2,000 take 10,000 cash, and now debt free
Adj Basis = ex. Start with cost (What you paid plus improvements minus depreciation) your basis and property for gift is same as person who gave it to you FMV = 1000 Cost = 1400
When property has depreciated and FMV is lower than Cost, and sold for loss, your basis is not the same! This is called Loss Property – Property is worth less than basis at date of gift
1. is depreciated
2. will be sold at lost.
VERY RARE: If property is sold between the two numbers FMV and Cost, you don’t have gain or loss.

Property converted from personal use to business use

Bought comp for (cost) 5000 6/15 one year later FMV is 3,000
The basis for depreciation of this item if you want to convert to business asset after personal use, is lower of two numbers.

Capital Assets Generally something held for investment (stocks and bonds) **WILL be taxed at lower rate only LONG TERM GAINS not SHORT ^^ this is why individuals prefer them to ordinary income Exhibit 11-4

§ 1231 Asset you have used in your business for over a year One year requirement in this section, Truck you bought two months ago, is not 1231 asset If you sell asset for a loss, you treat it as ordinary If you sell it for gain, treat is as capital gain ex 11-7 SP 10,000 Cost 12,000 A/D 3,000 Adjusted Basis = 9,000 +1,000 (gain because of depreciation) SP 13,000 Cost 12,000 A/D 3,000 Adjusted Basis = 9,000 +1,000 (gain because of appreciation) +3,000(depreciation) Will be taxed differently, Recapture? 11-9

Like-Kind Exchanges (11-20 - 11-24) Person A Person B SP 12,000 SP 12,000 Basis 8,000 Basis 9,000 Gain 4,000 realized and recognized 3,000 R&R
If we replace the Gain with a truck ex. (swap truck) new rule; Like-Kind Exchange: assets held for business used assets. When A has property he holds for BUSINESS USE OR INV and exchanges property with B which he CONTINUES TO USE FOR BUSINESS AND INV
**only one party must meet requirement of using asset for business use or inv**
**This exchange is un-taxable by A since he meets the requirements.**
This like kind exchange is refered to § 1031 exchange. Real Property – All real property is considered Like-Kind with any other type of real property as long as rhe real property is used in a trade of business or held for investment. Personal Property (11-24)

Tax consequenses of transfers involving like-kind and non-like-kind property (BOOT)

When all requirements are met, and cash is included in trade, cash is taxed! It is a dissimilar property! This is called Boot! The gain is recognized to amount of boot received. In previous example, basis was same as it was for each person.
Person A Person B SP 12,000 SP 11,000 + $1,000 Basis 8,000 Basis 9,000 Amount recognized is 1,000 Basis is same 8,000 as before

Involuntary Conversions
When property is partially or wholly by a natural disaster or accident, stolen, condemned, or seizezed via eminent domain by a government agency.
With involuntary conversions, ins company will give you check, in order to not pay tax, you must buy property of almost same use, for the amount of check or more

Chapter 12

LLC with multiple memebrs
LLC with single member
“C” Corp – taxable entity, computes taxable income same as us and file own return
“S” Corp - income shifted out and reported on owners personal return
Partnership

Exhibit 12-1- (P12-4)

LLC with multiple memebrs

LLC with single member

“C” Corp – taxable entity, computes taxable income same as us and file own return

“S”