About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
1 3 Federal Taxation of Property Transactions

3 Federal Taxation of Property Transactions

Key Concepts

Basis of Property

The basis of property is the cost or value of the property for tax purposes. It is used to calculate gain or loss when the property is sold. For example, if a property is purchased for $200,000, the basis is $200,000. If improvements are made, such as adding a new room for $50,000, the basis increases to $250,000.

Realized Gain or Loss

Realized gain or loss is the difference between the amount realized from the sale of property and its adjusted basis. For instance, if a property with a basis of $250,000 is sold for $300,000, the realized gain is $50,000.

Recognized Gain or Loss

Recognized gain or loss is the portion of the realized gain or loss that is subject to taxation. Not all realized gains are recognized for tax purposes. For example, if a property is sold at a loss, the entire loss may not be recognized if it is a personal-use property.

Depreciation Recapture

Depreciation recapture is the process of reporting and paying tax on the gain attributable to depreciation deductions taken on the property. If a property was depreciated over its useful life, any gain from its sale may be subject to recapture at a higher tax rate. For example, if a rental property was depreciated by $50,000 and then sold for a gain, the $50,000 may be taxed at a higher rate.

Like-Kind Exchanges

Like-kind exchanges allow taxpayers to defer the recognition of gain on the exchange of similar types of property. This is commonly known as a 1031 exchange. For example, if a commercial building is exchanged for another commercial building of equal or greater value, the gain may be deferred until the new property is sold.

Examples and Analogies

Consider the basis of property as the "starting point" for tax calculations. Realized gain or loss is the "net result" of the sale. Recognized gain or loss is the "taxable portion" of that result. Depreciation recapture is the "catch-up" for past deductions. Like-kind exchanges are the "tax deferral tool" for similar properties.

Conclusion

Understanding the federal taxation of property transactions is crucial for CPAs. By mastering the basis of property, realized and recognized gain or loss, depreciation recapture, and like-kind exchanges, CPAs can effectively advise clients on tax implications and strategies related to property transactions.

© 2024 Ahmed Baheeg Khorshid. All rights reserved.