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Acct 553 Week 7 Homework

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ACCT553
Week 7 Homework – Tanushant Sharma
_________________________________________________________
Please provide your answer to each question in the space provided below.
When finished, submit to the DropBox.

Chapters 10-11-12
1. Please explain the distinction between a "realized" gain and a "recognized" gain. (5 pts)
Difference between:
Recognized Gain:
Profit from sale of asset, which is reported for income tax purpose. It is the difference between basis of asset and the sale price.
Realized Gain:
Realized gain is the amount which is actually received from the sale of asset. Cost, which is associated with the sale of asset, is deducted while calculating realized gain. All realized gains are recognized gains unless and otherwise specified.
As per IRS if an asset is sold after holding it for one year or more then the gain on sale will be long term gain.
2. Are there any limits to the deductibility of losses on sales and exchanges between related parties? What code section defines this limitation? (5 pts.)
Deduction for the losses on sale and exchange is not allowed if the sale or exchange is between related parties takes place directly or indirectly. Exception to this is distribution of assets in case of complete liquidation. The limits are mentioned in Sec 267 of U.S. Code. As per this code if partnership, corporation, estate or trust is holding interest directly or indirectly then it will be treated as the partners, beneficiaries etc. are holding proportionate interest. Any loss by exchange between these will not be allowed deduction.
3. What is the basis of property received (i.e. new property) in a like-kind exchange? What is the holding period for the new asset? (5 pts.)
Like kind exchange is exchange of one real property with other real property. Both the real property should be qualifying property for the exchange to be like-kind…...

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