Flashcards
Chapter 11 Key Terms
Flashcards do conjunto (26)
- 1Depreciation RecaptureThe portion of a corporate taxpayer's gain on real property that is converted from §1231 gain to ordinary income.
- 2§1231 AssetsDepreciable or real property used in a taxpayer's trade or business owned for more than one year.
- 3§1231 look-back ruleA tax rule requiring taxpayers to treat current year net §1231 gains as ordinary income when the taxpayer has deducted a §1231 loss as an ordinary loss in the five years preceding the current tax year.
- 4§1245 propertyTangible personal property and intangible property subject to cost recovery deductions.
- 5§1250 propertyreal property subject to cost recovery deductions.
- 6Adjusted basisan asset’s carrying value for tax purposes at a given point in time, measured as the initial basis (for example, cost) plus capital improvements less depreciation or amortization. Also called adjusted tax basis.
- 7Amount realizedthe value of everything received by the seller in a transaction (cash, FMV of other property, and relief of liabilities) less selling costs.
- 8Bootproperty given or received in an otherwise nontaxable transaction such as a like-kind exchange that may trigger gain to a party to the transaction. The term boot derives from a trading expression describing additional property a party to an exchange might throw in “to boot” to equalize the exchange.
- 9Capital assetin general, an asset other than an asset used in a trade or business or an asset such as an account or note receivable acquired in a business from the sale of services or property.
- 10Deferred like-kind exchangea like-kind exchange where the taxpayer transfers like-kind property before receiving the like-kind property in exchange. The property to be received must be identified within 45 days and received within 180 days of the transfer of the property given up.
- 11Depreciation recapturethe conversion of §1231 gain into ordinary income on a sale (or exchange) based on the amount of accumulated depreciation on the property at the time of sale or exchange.
- 12Direct conversionswhen a taxpayer receives noncash property rather than a cash payment as a replacement for property damaged or destroyed in an involuntary conversion.
- 13Indirect conversionsreceipt of money or other property as a replacement for property that was destroyed or damaged in an involuntary conversion.
- 14Installment salessales for which taxpayers receive payment in more than one period.
- 15Involuntary conversionsdirect or indirect conversions of property through natural disaster, government condemnation, or accident that allows a taxpayer to defer realized gain if certain requirements are met.
- 16Like-kind exchangea nontaxable (or partially taxable) trade or exchange of assets that are similar or related in use.
- 17Nonrecaptured net §1231 lossa net §1231 loss that is deducted as an ordinary loss in one year and has not caused subsequent §1231 gain to be taxed as ordinary income.
- 18Ordinary assetan asset created or used in a taxpayer’s trade or business (e.g., accounts receivable or inventory) that generates ordinary income (or loss) on disposition.
- 19Production of incomea for-profit activity that doesn’t rise to the level of a trade or business.
- 20Qualified replacement propertyproperty acquired to replace property damaged or destroyed in an involuntary conversion. It must be of a similar or related use to the original property even if the replacement property is real property (e.g., rental real estate for rental real estate).
- 21Realized gain or lossthe difference between the amount realized and the adjusted basis of an asset sold or otherwise disposed of.
- 22Recognized gains or lossesgains or losses included in gross income on a taxpayer’s tax return. This is usually the realized gain or loss unless a nonrecognition provision applies.
- 23Substituted basisthe transfer of the tax basis of stock or other property given up in an exchange to stock or other property received in return.
- 24Tax-deferred transactiona transaction where at least a portion of the realized gain or loss is not currently recognized.
- 25Third-party intermediariespeople or organizations that facilitate the transfer of property between taxpayers in a like-kind exchange. Typically, the intermediary receives the cash from selling the property received from the taxpayer and uses it to acquire like-kind property identified by the taxpayer.
- 26Unrecaptured §1250 gaina type of §1231 gain derived from the sale of real estate held by a noncorporate taxpayer for more than one year in a trade or business or as rental property attributable to tax depreciation deducted at ordinary tax rates. This gain is taxable at a maximum 25 percent capital gains rate.