{"id":954,"date":"2012-07-21T07:12:37","date_gmt":"2012-07-21T11:12:37","guid":{"rendered":"http:\/\/www.miblaw.com\/lawschool\/?p=954"},"modified":"2012-07-21T09:57:18","modified_gmt":"2012-07-21T13:57:18","slug":"federal-tax-outline-7","status":"publish","type":"post","link":"http:\/\/www.miblaw.com\/lawschool\/federal-tax-outline-7\/","title":{"rendered":"Federal Income Tax Outline – Page 7 Capital Asset"},"content":{"rendered":"

The Meaning of “Capital Asset”<\/strong><\/h3>\n

1211(a)<\/strong>
\n<\/em><\/p>\n

Cases:\u00a0<\/em><\/em><\/p>\n

Mauldin v. Commissioner <\/em><\/h3>\n

Helpful facts to determine whether property is a \u201ccapital asset\u201d – 1. The purpose(s) for which the property was acquired – sale or investment; 2. Continuity and frequncey of sales as opposed to isolated transactions; 3.\u00a0Ppurpose for which it was sold (most important)<\/p>\n

Malat v. Riddell<\/em><\/h3>\n

<\/em>Section 1221(1) denies capital gain treatment to profits reaped from the sale of “property held by the taxpayer\u00a0primarily<\/em>\u00a0for sale to customers in the ordinary course of his trade or business;” Primarily means “of first importance” or “principally.”<\/p>\n

 <\/p>\n

The Holding Period<\/strong><\/h3>\n

Cases:
\n<\/em><\/p>\n

Revenue Ruling 66-7 <\/em><\/h3>\n

<\/em>Calculating a time period; “From” or “after” – excludes the day thus designated and the last day of the prescribed period is included; calendar months and factions thereof, rather than with reference to days; capital assets – the holding period begins to run on the day following the date of acquisition<\/strong><\/p>\n

Statutorily Created Capital Gain and Loss<\/strong><\/h3>\n

Section 1231 Recharacterization –\u00a0Page 751 – Unquestionably the most significant recharacterization<\/p>\n

 <\/p>\n

Involuntary conversion<\/strong><\/h2>\n

1231(c) – Lookback Recapture Rule:<\/p>\n

    \n
  • If you have a gain, and if in the prior five years you have taken a deduction(s) through 1231<\/li>\n
  • Gain Recognized may be different than Gain Realized<\/li>\n<\/ul>\n

    Example:<\/p>\n

    $10,000 loss in Year 1. In Year 2 you take a $7,000 gain. That $7,000 gain would be treated as ordinary income and then there would be $3,000 left in the “filter.” Year 3 you have $5,000 gain, $3,000 would be ordinary income and $2,000 would be LTCG<\/p>\n

     <\/p>\n

    Characterization <\/strong><\/h3>\n

    1239 \u2013 Related Taxpayers \u2013 Gain recognized to the transferor is treated as ordinary income<\/strong>
    \nExample:<\/p>\n

    Corporation owned by A. A sells a $100,000 piece of machinery to the corporation (1231 property). Had an Adjusted Basis of $20,000; therefore, A has a GRealized of $80,000 and GRecognized of $80,000. If the corporation is going to take a business deduction, they would be offsetting ordinary income. Therefore,\u00a0any gain recognized to the transferor shall be treated as ordinary income.<\/p>\n

      \n
    • Does not matter if the transferee takes the deduction or not – it is subject to depreciation<\/li>\n
    • This is given capital treatment.<\/li>\n<\/ul>\n

       <\/p>\n

      Federal Tax Outline – Page 6<\/a><\/p>\n

       <\/p>\n

      This Federal Tax Outline is keyed to Fundamentals of Federal Income Taxation, 15 edition, Foundation Press.<\/p>\n