Nonrecog. of Gain / Loss

1. Sit. 4 Nonrecog.
   1. T's Position Not Change Much
   2. Good Policy T Not Have 2 Recog. Gain / Loss
2. Nonrecog. of Exch. § 1031
   1. Exch. of Like Prop.
      1. Held 4 investment / prod. 4 use in trade / busi.
      2. Consid. fn. & use 4 det'ing like kind
      3. Time limit
         1. Must desig. prop. w/in 45 days of exch.
         2. Must B bought & turned over in 180 days
      4. Not apply 2 stocks & bonds
      5. Not recog. either 4 gain / loss
   2. Non Like Kind Prop. / Boot
      1. Cash / other prop. exch'ed, recog. gain 2 recipient but not exceed sum of such $ & fair mkt value of prop. § 1031)b
   3. Basis
      1. Carry over basis 4 exch'ed prop.
      2. If there's boot, allocate basis btwn like v. non like
      3. Basis 4 exch'ed prop. is basis - boot + recog. gain
      4. Basis of boot is fair mkt value
3. Nonrecog. of Invol. Conversion § 1033
   1. Applies 2
      1. Acts of nat.
      2. Somebody committing tort & recov. $
      3. Condemnation of prop. & compensated / rsbl threat of condemnation
   2. Invol. Conversion of Prop.
      1. Not recog. gain if reinvest proceeds 2 prop. of similar in use / serv. & in fn. w/in 2 yrs.
      2. Recog. 2 extent amt realized on exceeds cost
      3. Carry over basis § 1033)b
4. Qualified Small Busi. Stock § 1045
   1. Carry Over Basis
   2. Held 4 6 Mo's
5. Marriage & Divorce
   1. Transf's Btwn Spouse / Divorcees § 1041
      1. Gifts so no recog. of gain
      2. Anything w/in 1 yr. is incident 2 divorce
      3. Carry over basis
6. House § 121
   1. Not Recog. Gain from Home Sale
      1. Excl. perm'ly $250k / person if T's princ. res. 2 out of 5 yrs. before sale
   2. Not Recog. Loss Deduction
   3. Disadv's 2 Renters & Home Offices

Cap. Gain & Loss

1. Pref. Cap. Gain Treatment
   1. Mechanics of Cap. Gain & Loss § 1222
      1. If hold more than 1 yr., long term cap. gain
      2. All short term cap. gain + all short term cap. loss = net short term cap. gain / loss
      3. All long term cap. gain + all long term cap. loss = net long term cap. gain / loss
      4. Net long term cap. gain - net short term cap. loss = net cap. gain which gets pref. treatment
2. Cap. Assets
   1. Def. of Cap. Asset § 1221: T's Prop. Except
      1. Inventory / prop. 4 sale 2 customers,
      2. Copy rt., lit., etc. created by pers'al effort
      3. Acct's receivable in trade / busi.
      4. Pub. of US govt
      5. Prop. used in trade / busi. subj. 2 depreciation / real prop. in trade / busi.
         1. Could B cap. asset if more gain than loss § 1231
         2. If loss exceeds gain, then ord. loss § 1231
   2. Det'ing Cap. Asset
      1. Should label prop. 4 investment v. not (§ 1236 4 sec. dealers)
      2. If hold real prop. 4 investment, safe harbor if hold 5 yrs., subdiv. w/o maj. improvement, & not in real estate § 1237
      3. Future K's
   3. Jud'al Exceptions of Not Cap. Assets
      1. Not cap. asset if rent is ord. income in cancelling lease & getting $
      2. Collapsible corp. where paid 4 compensation in buying stock 4 corp.
      3. Using image by licensing / selling, then not cap. asset
      4. Future K's 4 inventory / integral part of what corp. is doing, not cap. asset
3. Recapture
   1. Depreciable Tangible Prop.
      1. To extent T sells asset, gain attributable 2 depreciation deduction treated as ord. income § 1245
   2. Depreciable Real Prop.
      1. To extent depreciation exceed accelerated depreciation § 1250 but now use straight line so not applicable anymore
4. Limited Loss Deductibility § 1211

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December 8, 1997

Ms. Haeji Hong