Tax Accounting Essay

A2c. Profit or Loss from the Sale of Property: The taxpayer couple sold personal and rental property for this tax period. Both sales have potential gains. However, the gain from the sale of the personal residence qualifies for exclusion up to $500,000 under Section 121 as they lived in and used the residence at least two of the five years prior to the sale. The gain or loss is calculated as the sale price less selling costs and adjusted basis of the property. Proceeds from the sale of the rental property are taxable because it is an income producing property and would be considered normal income. However, Section 1231 designates that exchanges of business property held longer than one year may be considered a long-term capital gain if there is a gain realized and any loss would be considered an ordinary loss. Any depreciation taken in past tax years will need to be recaptured in the tax year of the sale.

A2e. Passive Activity Gains and Losses The passive activity rules apply to Individuals, estates, trusts (other than grantor trusts), personal service corporations, and, closely held corporations. (IRS Publication 925) As defined by the IRS, a passive activity is a business activity in which the investor or business owner has the potential to profit but in which the individual does not materially or physically participate. A material participation in a business activity means that the individual participates on a "regular, continuous, and substantial" basis (as defined by the IRS). (Jean Murray, Passive Activity) The couple had two passive activities, both of which we rental activities. Per the IRS, A rental activity is a passive

Capital gain or loss that happens to a dwelling that is a taxpayer’s main residence is

The log maintained by the couple indicates that the couple used 14 guaranteed personal days. If even 1 out of the 28 days that the couple partially or fully worked on the house is considered a personal day than the 14-day provision is violated. However, if none of those days turn out to be considered personal days then the loss in excess over rental income can be deducted according to section 280A. Section 183(a) permits no allowable deductions for activities not found to be engaged in for profit. However, we found that the Harrell’s activities are found to be engaged in for profit and should therefore be allowed these deductions.

Rule: Passive activity is any activity in which the taxpayer does not materially participate. A net passive activity loss generally may not be deducted against other types of income (e.g., wages, other ordinary or active income, portfolio income (interest and dividends), or capital gains). In other words, passive losses may generally only offset passive income for a tax year-the remaining net loss is generally "suspended" and carried forward to a year when it may be used to offset passive income (or when the final disposition of the property occurs). However, there is an exception (the "mom and pop exception," as we refer to it in the textbooks) to this general rule. Taxpayers who own more than 10% of the rental activity, have modified AGI under $100,000, and have active participation (managing the property qualifies), may deduct up to $25,000 annually of net passive losses attributable to real estate. There is a phase-out provision for modified AGI from $100,000 − $150,000, and the deduction is completely phased-out for modified AGI in excess of $150,000.

Personal and rental expenses are the tax treatment to allocate because taxes and interest are a schedule A. This makes property income a schedule E.

Part III: Discuss the tax consequences of contributing cash, property, and/or services to the new entity.

Explain the argument over whether or not this should be considered a tax instead of

The data for this research was collected from secondary data sources and then organized by research questions posed. The informational articles provided the legislative policies of §280A as well as guidance in applying the associated rules and conditions when considering its use. Providing the policy differences between an employee and an entrepreneur was necessary in order to illustrate the tax treatment of each when considering the deductibility of expenses incurred in business use of the home. This background information was then enhanced by qualitative resources that were collected, which consisted of the review of case law that highlighted the distinctions and issues relative to the application of the code section. This analysis,

But: -- just because regularity is a common feature of income, do not conclude that an isolated or one-off receipt cannot be income: see Cooling’s case. [Principle upheld by a majority of HCA in Montgomery (1999).] Isolated transactions may generate income when they are entered into with the intention of making a profit - Myer Emporium (1987); California Copper (1904). 9. Amount derived from carrying on a business The old view was that this provision captured only what was already income by ordinary concepts other than its non-convertibility to money [hence ‘value to the taxpayer’ - Scott’s case] but in Smith’s case (1987) Brennan J considered the provision captured capital amounts too. The application of s26(e)/15-2 has been largely overtaken by Fringe Benefits Tax (for employees) and s21A (for business benefits) 10. Amount derived from employment or the provision of service. • Isolated transactions See Myer Emporium [California Copper].~ Isolated or unusual transactions involving the sale of capital assets [structure] may yet produce revenue amounts when entered into with the intention of making profit. ordinary business transactions generate income by ordinary concepts because the nature of business is profit making; 11. Amount derived from property. Property yields rent, interest, dividends and royalties. Interest is not defined in the Act. Its ordinary meaning is the amount

Presently there are numerous tax benefits enjoyed by investors in oil, the purpose of which are to encourage oil and gas production on American lands, discourage dependence on foreign oil and also to create and maintain well-paying jobs in the industry. These benefits allow companies drilling wells and developing production property to determine whether they should capitalize or deduct certain expenditures. Capitalized costs of equipment or leasehold interests are recovered through either depreciation (in the case of equipment or building) or depletion (in the case of the leasehold interest). At present, deductible expenses

Under Canadian Tax Law, there is an election for companies to defer recaptures and capital gains of property that was involuntarily or voluntarily disposed of. In this research paper, we attempt to prove that the election is a useful taxation strategy for businesses so that they are not subject to pay taxes on capital gains or recaptures until such a time where they may acquire an eligible replacement property that will help them earn business income. We will provide facts, definitions, and examples to illustrate the use of this election throughout the paper by explaining the capital cost allowance system, the offset available to business for capital gains and recaptures, the election process, the rules regarding replacing former business

A little over a year ago I was at a loss for what I wanted to do when I graduated. I had contemplated going into the legal field as a paralegal but that job would not give me the chance to be creative. Then I had this big idea that I should go to school to be a dietician but the only problem was that science was my weakest subject.

The seller loses the flexibility associated with property ownership, such as changing or discontinuing the use of the property or modifying a building. The sale-leaseback often restricts the seller’s right to transfer the leasehold interest, and even if possible, generally it is more difficult to dispose of a leasehold interest than a fee-ownership interest. Also, if a seller wants to improve the leased property, it may be difficult to obtain financing secured by a leasehold interest. Moreover, the leasehold may contain provisions that prohibit the seller from mortgaging the leasehold interest. Because the property involved in a sale-leaseback generally is held for use in the seller’s trade or business, it qualifies for capital gain-ordinary loss treatment. Under Section 1231 of the Internal Revenue Code, if the property is held for the long-term holding period, gain on the sale, with some exceptions, will be taxable as long-term capital gain to the extent that the gain exceeds the losses in the same year from the sale of other Section 1231 property. However, the gain will be taxable as ordinary income to the extent of recapture income. But in the case that the sale results in a loss, it will be deductible in full as an ordinary loss to the extent the loss exceeds Section 1231 gains from the sale of other property in the same year. This can be a substantial advantage to the seller in a sale-leaseback transaction. On the other hand,

The federal and state governments provide the American citizens with all of the basic necessities within our communities and society that is taken for granted. Programs responsible for assistance in times of need, providing a quality standard of living, and maintaining the strongest military in the world costs incomprehensible amounts of money and could never exist without taxes from the American people. Taxes are payments made by individuals and businesses to support the government and its services. The constitution grants that congress “shall have the power to lay and collect taxes, duties, imposts, and excises and to pay the debts and provide for the common defense and general welfare of the people”. Taxes paid by Americans redistribute