How is Interest Taxed?
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Terms in this set (26)
How is Interest Taxed?
taxed at ordinary rate
how are qualified dividends taxed?
taxed annually at preferential rates.
how are Net LTCG taxed?
tax deferred at preferential rate
how are STCG taxed?
taxed currently at ordinary rate
how are net capital losses taxes?
Deduct up to $3,000 against ordinary income in current year. Carry forward remaining.
Why does the tax code allow nonrecognition?
1. taxpayer may not have wherewithal to pay
2. exchange results in a change in form but not the substance of the taxpayer's economic position
- Taxpayer has not "cashed out" - transaction has occurred BUT taxpayer is continuing in essentially the same original investment
substituted or carry over basis
...
Which of the following exchanges qualifies as like-kind property?

a. partnership interest for partnership interest
b. business use desk for business computer
c.inventory for equipment
d. investment land for business -use building.
d. investment land for business -use building.

(To qualify as like-kind, the exchange must involve the transfer of realty, used in a trade or business or held for investment.)
T/F: If an individual receives cash as part of a like-kind exchange, the entire gain on exchange will be taxable.
False

- When "boot" (non-like-kind property like cash) is received in a like-kind exchange, the recognized gain equals the lesser of the FMV of the boot received or the realized gain on the exchange.
Kadim exchanges a building he uses in his rental business for a building owned by Julia that she will use in her rental business. The building Kadim is giving up has adjusted basis of $160,000 and FMV of $250,000. The building that Julia is giving up has adjusted basis of $80,000 and FMV of $250,000.

What is Kadims recognized gain and his basis?
recognized gain is $0 and his basis in the new building is $160,000.

- Kadim's $90,000 realized gain qualifies for nonrecognition under §1031. Kadim will take $160,000 carry-over basis in the building received ($250,000 FMV of property received - $90,000 deferred gain).