Taxation of Real Estate Transactions—An Overview, written by James Edward Maule, Esq., Professor of Law at Villanova University School of Law, examines the tax consequences of various real estate transactions, providing an authoritative and practical working tool for attorneys, accountants, investors, syndicators, and others involved in the real estate field.
This Portfolio describes in general terms the tax treatment of the acquisition, operation, ownership, and disposition of real estate and examines the information reporting rules specifically applicable to real estate transactions. It also reviews a number of key issues, including:
Intended as an overview of the tax factors affecting real estate ownership and operation, Taxation of Real Estate Transactions—An Overview is designed to provide a framework to which the user can connect the very specific and detailed discussions in other Portfolios addressing particular issues. To that end, numerous references are made to other Tax Management Portfolios.
Taxation of Real Estate Transactions — An Overview allows you to benefit from:
This Portfolio is part of the U.S. Income Portfolios Library, a comprehensive series that includes more than 200 Portfolios, which cover every federal tax topic with expert, in-depth analysis, and offer commentary on a wide range of federal taxation topics, including Compensation Planning, Deductions and Credits, Partnerships and Corporations, Special Pass-Through Entities, Corporate Reorganizations, Real Estate, Procedure and Administration, and more.
Detailed Analysis
I. Introduction
A. Overview
B. Historical Background
1. Introduction
2. Early Federal Income Tax Statutes
3. Passage of the Sixteenth Amendment
4. Post-Sixteenth Amendment Income Tax Acts
a. Revenue Act of 1913
b. Subsequent Statutory Development
(1) Pre-Codification
(2) Internal Revenue Code of 1939
(3) Internal Revenue Code of 1954
(4) Internal Revenue Code of 1986
II. Acquisition of Real Property
A. Acquisition Basis
1. In General
2. Basis Generally
a. Purchase
(1) In General
(2) Reacquisition from Creditors
(3) Annuity Transactions
b. Exchange
(1) Taxable Exchanges
(2) Nontaxable and Partially Taxable Exchanges
c. Constructed Property
(2) Produced Property Capitalization Rules
(a) In General
(b) Costs Required to Be Capitalized
(c) Produced Property
(d) Exceptions
(3) Enhancements to Real Property Benefitting Others
d. Receipt Through a Decedent
e. Receipt Through Gift
f. Received from Spouse or Former Spouse
g. Real Property with Basis Established Under Prior Law
h. Real Property Acquired Before March 1, 1913
3. Acquisition Costs
a. In General
b. Obligations of the Seller
c. Demolition of Acquired Building
4. Liabilities
b. Nonrecourse Liabilities
c. Contingent Liabilities
d. Redeemable Ground Rents
5. Future Development Costs
b. Alternative Cost Method
(1) Generally
(2) Common Improvements
(3) Estimated Cost of Common Improvements
(4) Alternative Cost Method Limitation
(5) Request for IRS Consent
(b) Automatic Consent Procedure
(c) Private Letter Ruling Procedure
(d) Special Transition Procedure
(e) Specified Information
(6) Agreement to Extend Statute of Limitations
(7) Annual Statement Requirement
(8) Supplemental Request Requirement
B. Lease Acquisition
2. Treatment of Lessors
3. Treatment of Lessees
4. Sale-Leaseback Transactions
b. Treatment of the Seller-Lessee
c. Treatment of the Buyer-Lessor
d. Characterization of Sale-Leaseback
(2) Sale-Leaseback with Tax-Exempt Organization
C. Financing Real Estate Acquisitions
1. Mortgage and Similar Financing
b. Financing Expenses
(1) Loan Fees
(2) Points
2. Government Financing
b. Qualified Residential Rental Project
D. Syndicated Ownership of Real Property and Mortgages
2. Classification of Syndicated Organizations
a. General Partnership
b. Limited Partnership
c. LLP and LLC
d. C Corporation
e. S Corporation
f. Trust
g. Taxable Mortgage Pool
h. REMIC
i. REIT
j. FASIT
III. Owning, Operating, and Using Real Property
A. Introduction
B. Gross Income
1. Rents
b. De Minimis Rent on Dwelling Unit Used as Residence
c. Assignment of Rental Income
2. Lessee Improvements
a. Landlord
b. Lessees
3. Gross Income from Use of Real Property
a. Owner Use of Real Property
b. Use of Another Person's Real Property
c. Certain Conservation Cost-Sharing Payments
4. Receipt of Loan Proceeds With Obligation to Repay
5. Discharge of Indebtedness
b. Bankruptcy, Insolvency, and Certain Farm Debt Exclusions
c. Qualified Real Property Business Indebtedness
d. Principal Residence Indebtedness Exclusion
e. Foregone Deduction Exclusion
f. Purchase Price Reduction Exclusion
g. Gift Exclusions
6. Gross Income of Nonresident Aliens, Foreign Corporations, and Other Foreign Entities
7. Real Estate Activities of U.S. Taxpayers Abroad
b. Controlled Foreign Corporations
C. Deductions
2. Trade or Business and For-Profit Activity Deductions
b. Trade or Business Deductions Generally
(2) Trade or Business
(3) Ordinary and Necessary Expenses
(4) Carrying On
(5) Paid or Incurred During the Taxable Year
c. For-Profit Activity Deductions Generally
(2) Lack of Trade or Business
(3) Pre-Opening Expenses
(4) Production of Income
(a) Income Motive
(b) Income
(5) Ordinary and Necessary
d. Specific Types of Deductible Expenses
(1) Compensation Related Expenses
(2) Cost of Goods Sold
(b) Elements of Cost of Goods Sold
(i) Purchase Price
(ii) Use of Related Assets
(iii) Costs of Acquisition and Protection
(iv) Assurance of Supply
(v) Future Costs
(c) Inventory Adjustments
(3) Rent Expenses
(4) Repairs
(i) Limitations
(ii) Effect of Depreciation and Amortization
(iii) Recently Acquired Property
(b) Expenditure Required
(c) Type of Expenditures
(5) Insurance
(6) Advertising
(7) Business Protection
(8) Entertainment
(9) Transportation, Travel, and Relocation Expenses
(a) Transportation
(b) Travel
(c) Relocation and Moving Expenses
(10) Supplies
(11) Education Expenses
(12) Professional Expenses
(13) Dues
(14) Payments for Professional Services
(a) Accounting Fees
(b) Business Advice
(c) Investment Advice
(d) Appraisal Fees
(e) Actuarial Fees
(f) Business Services
(g) Legal Counselling
(h) Litigation Fees and Expenses
(15) Trade or Business and For-Profit Activity Losses
(16) Net Operating Loss Deduction
(17) Start-Up Expenditures Incurred After October 22, 2004
(18) Organizational Expenditures Incurred After October 22, 2004
(a) Corporate Expenditures
(i) In General
(ii) Expenditures Incurred After October 22, 2004
(b) Partnership Expenditures
e. Expenditures Otherwise Capitalized
(2) Start-Up Expenditures Amortization for Expenses Incurred Before October 23, 2004
(3) Organizational Expenditures Amortization for Expenses Incurred Before October 23, 2004
(a) Corporations
(b) Partnerships
(4) Depreciation
(b) Depreciable Property
(i) Tangible Property
(ii) Intangibles
(iii) Term Interests
(c) Computational Structure
(ii) Depreciable Basis
(iii) Acceptable Methods
(iv) Useful Life
(v) Salvage Value
(d) Taxpayer Entitled to Computation
(ii) Life Estates and Income Interests with Remainders
(5) Accelerated Cost Recovery System Deductions
(b) Effective Dates
(c) MACRS and ACRS Property
(ii) Tangible Property
(iii) Trade, Business, or For-Profit Use
(iv) Of a Character Subject to the Allowance for Depreciation
(v) Possession of Economic Interest in the Property
(A) In General
(B) Security Title
(C) Executory Contracts of Sale
(D) Leased Property
(E) Cost Contributors
(d) Unadjusted Basis
(e) Recovery Period and Classification of Property
(ii) Exceptions
(iii) Real Property Recovery Periods
(A) Five-Year Property
(B) Seven-Year Property for MACRS Purposes
(C) Ten-Year Property for MACRS Purposes
(D) Ten-Year Property for ACRS Purposes
(E) 15-Year Property for MACRS Purposes
(F) 15-Year Property for ACRS Purposes
(G) 20-Year Property for MACRS Purposes
(H) 25-Year Water Utility Property for MACRS Purposes
(I) 18-Year Property for ACRS Purposes
(J) 19-Year Property for ACRS Purposes
(K) Low Income Housing for ACRS Purposes
(L) 27.5-Year Residential Rental Property for MACRS Purposes
(M) 31.5-Year Nonresidential Real Property for MACRS Purposes
(N) 39-Year Nonresidential Real Property for MACRS Purposes
(O) 50-Year Railroad Property for MACRS Purposes
(iv) MACRS Alternative Depreciation System Recovery Periods
(B) Alternative Depreciation System Recovery Periods
(v) Property Used Predominantly Outside the United States for ACRS Purposes
(vi) Indian Reservation Property
(f) Recovery Percentages
(ii) Applicable Recovery Methods
(iii) Applicable Conventions
(g) Special Rules Affecting Computation of Deduction
(h) Additional Special Allowances
(6) Amortization of Intangibles
(7) Section 179 Expensing
(8) Commercial Revitalization Expenditures
(b) Limitation
(c) Qualified Revitalization Building
(d) Qualified Revitalization Expenditures
(e) Renewal Community
(9) Architectural and Transportation Barrier Removal Expenditures
(c) Architectural and Transportation Barrier Removal Expenses
(d) Qualified Architectural and Transportation Barrier Removal Expenses
(ii) Specific Standards
(e) Handicapped Individual
(f) Elderly Individual
(g) Election
(i) Manner of Electing
(ii) Deadline for Election
(iii) Scope of Election
(iv) Records to Be Retained
(10) Soil and Water Conservation and Endangered Species Recovery Expenditures
(b) Adoption of Method
(c) Scope of Method
(d) Percentage Limitation
(ii) Carryover
(e) Soil and Water Conservation Expenditures and Endangered Species Recovery Expenditures Defined
(iii) Conservation and Drainage District Assessments
(iv) Land Used in Farming
(f) Policy Limitations
(i) Conservation Plan Consistency
(ii) Wetlands
(g) Engaged in the Business of Farming
(ii) Landlords
(iii) Farms
(11) Land Conditioning Expenditures
(b) Limitations
(c) Land Conditioning Expenditures Defined
(d) Election
(12) Reforestation Expenditures
(b) Qualified Timber Property
(c) Reforestation Expenditures
(d) Amortization Period
(e) Limitations
(i) Maximum Dollar Limitation
(ii) Trusts, Estates, and Life Tenants
(f) Computation
(13) Compliance with EPA Sulfur Regulations Expenditures
(14) Refinery Property Expenditures
(b) Qualified Refinery Property Defined
(c) Limitations
(15) Energy Efficient Commercial Buildings Property Expenditures
(b) Energy-Efficient Commercial Buildings Property Defined
(c) Limitations and Adjustments
(16) Advanced Mine Safety Equipment
3. Deductions Allowable Without Regard to Trade or Business or For-Profit Activity
a. Interest
(2) Requisite Indebtedness
(3) Determination of Interest
(b) Original Issue Discount
(iii) Special Rules
(c) Redeemable Ground Rents
(d) Interest on Timeshare and Residential Lot Installment Sales
(e) Interest on Nondealer Installment Sales
(4) Limitations
(a) Personal Interest Limitation
(ii) Personal Interest
(iii) Qualified Residence Interest
(iv) Qualified Residence
(b) Investment Interest Limitation
(c) Reduction If Mortgage Credit Allowable
(d) Carrying Charges
(e) Interest Paid to Related Parties
(5) Allocation of Interest Among Expenditures
b. Taxes
(2) Specifically Enumerated Deductible Taxes
(a) Introduction
(b) State, Local, and Foreign Real Property Taxes
(i) On Real Property Ownership
(ii) Imposed at Rate Based on Valuation
(iii) Payments in Lieu of Real Estate Taxes
(3) Taxes Specifically Not Deductible
(b) Taxes Nondeductible for Policy Purposes
(c) Taxes Nondeductible Because Capital in Nature
(d) Taxes Nondeductible Because of Source of Funds Associated with Payment
(4) Identity of Taxpayer Entitled to Deduction
(b) Payment Through Agent
(c) Real Property
(5) Timing of the Deduction for Taxes
(b) Election to Accrue Taxes Ratably
(c) Accrual of Contested Taxes
c. Charitable Contributions of Real Property
d. Casualty Losses
(2) Casualty
(b) Disaster Losses
(c) Disaster Induced Residence Demolition or Relocation
(3) Exceptions
(4) Computation of Casualty Loss
(b) Basis Limitation
(c) Basis Override
(d) Insurance and Other Reimbursement Reduction
(5) Computation of Deduction
(a) Floor of $100
(b) Adjusted Gross Income Limitation
(6) Characterization Rules
e. Bad Debt Deduction
D. Credits
2. Investment Credit
b. Rehabilitation Credit
(2) Computation of Credit
(b) When Taken into Account
(3) Ineligible Property
(4) Basis Adjustments
(5) Recapture
(6) Other Special Rules
c. Reforestation Credit
3. Low-Income Housing Credit
b. Computation of Credit
c. Recapture of Low-Income Housing Credit
4. Disabled Access Credit
(2) Eligible Access Expenditures
(b) Qualified Access Purposes
(c) Disability
c. Eligible Small Business
d. Special Rules for Related Persons
(1) Controlled Corporate Groups
(2) Commonly Controlled Trades or Businesses
(b) Parent-Subsidiary Group
(c) Brother-Sister Group
(d) Combined Group
(e) Special Rules
e. Special Rules for Pass-Through Entities
(1) Partnerships
(2) S Corporations
5. Home Mortgage Interest Credit
6. Nonbusiness Energy Property Credit
b. Qualified Energy Efficiency Improvements
c. Residential Energy Property Expenditures
d. Limitations
7. Residential Energy Efficient Property Credit
b. Qualified Property
c. Limitations
8. First-Time D.C. Homebuyer Credit
b. Income Limitation
c. First-Time Homebuyer
d. Purchase
9. New Energy Efficient Home Credit
10. First-Time Homebuyer Credit
b. Limitations
(1) Dollar Limitation
(2) Modified Adjusted Gross Income Limitation
(3) Related Parties
c. Definitions
d. Exceptions
e. Recapture of 2008 Credit
f. Recapture of 2009 Credit
E. Deduction and Credit Limitations
2. Passive Loss Limitation
b. Covered Taxpayers
c. Passive Activity
(3) Real Property Business Exception
(4) Material Participation
(b) Special Situations
(c) Covered Corporations
d. Passive Activity Losses
(2) Passive Activity Deductions
(3) Passive Gross Income
e. Passive Activity Credits
f. Exceptions
(1) Net Active Income Exception
(2) Rental Real Estate Active Participation Exception
(b) Dollar Limitation
(c) Estates
(d) Active Participation
g. Carryforward of Disallowed Losses
(2) Activity No Longer Passive
(3) Taxpayer No Longer Covered
(4) Disposition of Activity
(b) Fully Taxable Dispositions
(c) Disposition by Death
(d) Installment Sale
(e) Disposition by Gift
(f) Distribution by Trust or Estate
h. Carryforward of Disallowed Credits
3. At-Risk Limitation
b. Loss
c. Credit Base
d. Covered Taxpayers
e. Applicable Activity
(1) Enumerated Activities
(2) Other Activities
(3) Separation and Aggregation Rules
(4) Active Businesses of Qualified C Corporations
(b) Qualifying Business
(c) Qualified C Corporation
f. Applicable Property
g. Aggregate Amount At Risk
(2) At-Risk Amounts Borrowed
(3) Qualified Nonrecourse Financing
(b) Activity of Holding Real Property
(c) Qualified Nonrecourse Financing
(d) Qualified Person
(4) Excluded Amounts
(a) Borrowing from Interested or Related Person
(b) Protection Against Loss
(5) Amounts Deductible
h. Nonqualified Nonrecourse Financing
(2) Nonrecourse Financing
(3) Qualified Person
(b) Low-Income Housing Credit At-Risk Limitation
(4) Related Person
(5) Application to Partnerships and S Corporations
(6) Subsequent Decreases in Nonqualified Nonrecourse Financing
(7) Subsequent Increases in Nonqualified Nonrecourse Financing
i. Carryforward of Disallowed Deductions
4. Not-For-Profit Activity Deduction Limitation
b. Limitation Amounts
(2) Application
c. Activity
d. Not-for-Profit Activity
(2) Net Income Presumption
(3) Initial Period Presumption
(b) Election
(c) Procedure
5. Dwelling Unit Deduction Limitation
b. Exceptions
c. Dwelling Unit
d. Limitation Amounts
e. Qualified Use
(1) Business Use of Dwelling Unit
(2) Business Storage Use
(3) Rental Use
(4) Day Care Use
f. Computational Limitations
(1) Rental Use
(2) Day Care Use
g. Used as a Residence
(2) Use for Personal Purposes
(3) Rental for Use as Principal Residence
(b) Shared Equity Financing Agreement
(c) Qualified Ownership Interest
h. Rental of Principal Residence
j. Coordination with § 183 Limitation
6. Capital Expenditure Limitation
(1) Deduction for Taxable Year Paid or Incurred
(2) Deferral of Deduction
c. Amounts Chargeable to Capital Account
(2) Acquisition Costs
(b) One-Year Exception
(3) Improvements
(b) Land Improvements
(c) Roofs, Floors, and Walls
(d) Building System Components
(4) Defending or Perfecting Title
(5) Acquisition of Business
(6) Entry into Profession
(7) Goodwill
(8) Acquisition of Investment
(9) Obtaining Loan
(10) Expenditures for Repair and Maintenance
(b) Factual Nature of Determination
(c) Determinative Tests and Factors
(i) Material Enhancement Factors
(ii) Relative Cost
(iii) Emergency Repairs
(iv) Accidents
(v) Damage Prevention
(vi) Security
(d) Expenditures Materially Enhancing Value
(ii) Involuntariness
(e) Expenditures Materially Enhancing Use
(ii) Change in Nature of Use
(iii) Combination of Property
(iv) Adaptation of Existing Use to Changes in Surroundings
(v) Productivity Improvements
(vi) Interior Improvements
(vii) Improvements for Tenants
(viii) Anticipated Sale as New Use
(ix) Governmentally Required Changes
(f) Expenditures Materially Enhancing Life Expectancy or Useful Life
(ii) Increase in Useful Life
(iii) Separable Improvements with Useful Life Exceeding One Year
(g) Expenditures Materially Enhancing Strength
(h) Expenditures Materially Enhancing Capacity
(i) Replacements of Increased Quality
(i) Roofs, Floors, and Walls
(ii) Building Systems
(j) Expenditures That Are Part of One Major Undertaking
(ii) Complete Reconditioning
(iii) Remodeling Projects
(iv) Ancillary Costs
(v) Allocation
7. Produced Property Capitalization Limitation
8. Demolition
9. Carrying Charges
b. Taxes and Carrying Charges Chargeable to Capital Account
(1) Unimproved and Unproductive Real Property
(2) Real Property
c. Items Not Treated as Chargeable to Capital Account
d. Election
10. Limitation on Expenses of Subdivisions Excluded from Inventory
11. Membership Organization Deduction Limitation
b. Applicable Membership Organizations
c. Specified Deductions
d. Carryforward of Disallowed Deductions
12. Deductions Attributable to Amounts for Which Credit Allowed
a. Low-Income Housing Credit Recapture Interest
b. Disabled Access Credit Expenditures
13. Deductions Disallowed for Failure to Continue Compliance with Conditions for Tax Benefit
a. Interest on Mortgage Financed with Mortgage Revenue Bond Proceeds
b. Interest on Mortgage Financed with Qualified Residential Rental Project Private Activity Bond Proceeds
c. Interest on Mortgage Financed with Qualified 501(c)(3) Bond Proceeds
d. Interest on Mortgages Financed with Private Activity Bond Proceeds
(1) Failure to Continue Complying Use
(2) Failure to Continue Complying Ownership
e. Interest on Mortgages Financed with Qualified Small Issue Bond Proceeds
14. Expenditures of Operating Personal Household
b. General Household Expenses
c. Multiple-Use Property
d. Increased Living Expenses
F. Expenses of Lessees
2. Rent Payments
b. Indirect Rents
c. Rent Paid in Advance
d. Reasonableness
e. Existence of Lease
3. Lessee's Payment of Real Estate Taxes
4. Amortization of Lease Acquisition Expenditures
5. Depreciation and Amortization of Leasehold Improvements
b. Restoration of Property
6. Lease Cancellation Payments
G. Special Residential Entities
1. Cooperative Housing Corporations
b. Cooperative Housing Corporation
(2) Stock Owned by Governmental Units
(3) Prior Approval of Occupancy
c. Tenant-Stockholder
d. Amount Deductible
(2) Cooperative Housing Corporation Real Estate Taxes
(3) Cooperative Housing Corporation Interest
(b) Computation
(c) Basis Limitation
(5) Proportionate Share
e. Exceptions
f. Treatment of the Cooperative Housing Corporation
2. Condominium, Homeowner, and Timeshare Associations
a. Treatment of Unit Owners
b. Treatment of Association
(2) Homeowner Association
(b) Management Associations
(c) Excluded Entities
(d) Election and Revocation
(3) Homeowners Association Taxable Income
IV. Disposition of Real Property
A. In General
B. Gain or Loss Realized
2. Realization Transactions
b. Material Differences in Exchanged Property
c. Specific Transactions in Property
(1) Sales and Exchanges
(b) Indirect Sales and Exchanges
(c) Reacquisition
(d) Transactions with State and Local Governments
(e) Transfers to Private Foundations
(f) Transfers to Qualified Retirement Plans
(g) Transfers to Political Organizations
(2) Easements
(3) Conveyance of Property to Satisfy Debt
(4) Abandonment
(5) Gifts and Gratuitous Transfers
(6) Charitable Contribution of Property
(7) Collateral and Other Security Devices
(8) Title Changes
(9) Transactions with Agents
(10) Transaction as Agent
3. Amount Realized
b. Cash and Property Received
c. Fair Market Value of Property Received
d. Treatment of Liabilities
(2) Gifts
(3) Other Liabilities
(4) Partnerships
(5) Exceptions
(a) Discharge of Indebtedness Income
(b) Liability Not Reflected in Transferor's Basis at Time Property Acquired
(6) Foreclosure and Deeds in Lieu Thereof
(7) Real Estate Taxes
e. Other Economic Benefits from Disposition
(1) Payment by Transferee of Transferor's Disposition Expenses
(2) Title Clearing Expenses
(3) Amounts Received from Other Parties to Facilitate Sale
(4) Employer Reimbursements
(5) Other Reimbursements
(6) Unrelated Debt Cancellation
(7) Retention of Occupancy
f. Costs and Expenses That Reduce Amount Realized
(2) Credits Allowed to the Purchaser
(3) Year of Sale Price Adjustments
g. Costs and Expenses That Do Not Reduce Amount Realized
(1) Expenses to Enhance the Sale of Property
(2) Costs and Expenses Otherwise Deductible
(3) Personal Expenditures
h. Allocation of Amount Realized
(2) Manner of Allocation
4. Adjusted Basis
b. Allocation of Adjusted Basis
c. Basis
d. Adjustments to Basis
(2) Transactional Adjustments to Basis
(a) Capital Expenditures and Similar Items
(b) Depreciation, Depletion, and Amortization
(c) Deferred Principal Residence Gain
(d) Unamortized Soil and Water Conservation Expenditures
(e) Mine Development and Exploration Expenditures
(f) Unharvested Crop Sales
(g) Coal and Iron Ore Disposals
(h) Disabled Access Expenditure Credit
(i) Investment Credit Property
(j) EPA Sulfur Regulation Compliance Property
(k) Railroad Track Property
(l) Energy Efficient Commercial Building Property
(m) New Energy Efficient Home Credit
(n) Nonbusiness Energy Property
(o) Residential Energy Efficient Property
(3) Special Basis Adjustments
(a) Substituted Basis Property
(b) Additional Estate Tax
(c) Elimination of Double Deductions
(d) Discharge of Indebtedness
(e) Lessee Improvements
(1) Bargain Sales to Charity
(2) Certain Term Interests
C. Nonrecognition
1. Like-Kind Exchanges
b. Property of Like Kind
(2) Timing Requirements
c. Held for Productive Use or for Investment
d. Exchange
(1) Types of Property
(2) Related Party Exchanges
(b) Disregarded Dispositions
(c) Related Parties
f. Partial Nonrecognition
2. Involuntary Conversions
b. Involuntary Conversion
c. Similar or Related in Service or Use
d. Outdoor Advertising Displays Treated as Real Property
e. Qualifying Replacement Purchase
f. Replacement Period
g. Principal Residences
(2) Federally Declared Disasters
h. Extension of Time for Assessments
3. Transfers Between Spouses or Incident to Divorce
4. Certain Reacquisitions of Real Property
b. Partial Recognition
c. Previous Bad Debt Deduction Recapture
d. Principal Residence Exception
5. Related Party Dispositions
a. Related Person Loss Nonrecognition
(2) Subsequent Disposition Gain Nonrecognition
(3) Related Persons
(4) Exceptions
b. Related Partnership Loss Nonrecognition
(3) Related Partnership Transaction
(4) Exception
6. Distributions of Qualified Farm Property
7. Transfers to Controlled Corporations
8. Corporate Reorganizations
9. Transfers to and Distributions from Partnerships
a. Transfers of Property to Partnerships
b. Distributions of Property by Partnerships
D. Exclusion of Recognized Gain from Gross Income
2. Exclusion of Realized Gain from Sale of Principal Residence
b. Partial Exclusion
(2) Regulatory Safe Harbors
(3) Consequences and Computation
c. Spousal Ownership and Divorce Transactions
d. Ownership and Use
e. Principal Residence
(2) Vacant Land
(3) Property Used Partly as Principal Residence
f. Tenant-Stockholders of Cooperative Housing Corporations
g. Involuntary Conversions
h. Interrelationship with § 1034
i. Partial Interests and Remainder Interests
j. Interrelationship of Sections 121 and 1031
E. Deduction of Recognized Loss
2. Measurement of the Loss
3. Capital Loss Limitation
b. Carryback and Carryforward of Disallowed Capital Loss Deductions
(1) Corporations
(b) Restrictions
(c) Special Rules
(d) Foreign Expropriation Capital Loss
(2) Noncorporate Taxpayers
4. Losses on the Disposition of Residences
F. Characterization of Recognized Gains and Losses
a. Significance of Characterization
b. Basic Characterization Principles
c. Capital Asset
(2) Identifying Real Property Held as Inventory
(3) Section 1237 Safe Harbor
(b) Qualified Tract
(c) Tract
(d) Five-Lot Limitation
2. Trade or Business Assets
b. Section 1231 Gains and Losses
c. Property Used in a Trade or Business
d. Recapture of § 1231 Losses
3. Recapture Characterizations
b. Section 1245 Depreciation Recapture
(2) Section 1245 Property
(3) Computation of Recapture
c. Section 1250 Depreciation Recapture
(2) Section 1250 Property
d. Farmland Expenditure Recapture
e. Section 126 Property Recapture
f. Wetland and Cropland Recapture
4. Related Party Dispositions
a. Related Person Gain Recharacterization
(2) Related Persons
b. Related Partnership Gain Recharacterization
(2) Related Partnership Transaction
5. Leasehold Cancellations
6. Characterization of Option Transactions
7. Partnership Characterization Provisions
G. Timing Issues
1. Installment Method
b. Installment Sale
(2) Dealer Disposition
(b) Qualified Residential Property Dispositions
(c) Payment of Interest on Deferred Tax Liability
c. Computation of Amount Included in Gross Income
d. Related Person Dispositions
(2) Amount of Deemed Payment
e. Related Person Depreciable Property Sales
(2) Related Person
f. Installment Sale of Recapture Property
g. Interest Payable on Deferral Benefit
2. Certain Long-Term Contracts
b. Long-Term Contract
c. Modified Percentage of Completion Method
(2) Costs Allocated to Contract
(3) Look-Back Method
d. Construction Contract Exceptions
(2) Small Short-Term Contract
(3) Home Construction Contract
(4) Residential Construction Contract
H. Recaptured Credits
2. Recapture of Investment Tax Credit
b. Early Disposition Recapture Amounts
c. Progress Expenditure Recapture Amounts
e. Consequences
f. At-Risk Reduction Recapture
3. Recapture of Low-Income Housing Credit
b. Low-Income Housing Recapture Amount
(2) Accelerated Portion of Credit
d. Taxpayers in Partnerships
4. Tax on Disposal of Federally Subsidized Residence
b. Federally Subsidized Residence Recapture Amount
(2) Federally Subsidized Amount
(3) Holding Period Percentage
(4) Income Percentage
c. Federally Subsidized Indebtedness
e. Reporting Requirement
5. Tax on Disqualified Transfer of Residual REMIC Interest
b. Disqualified REMIC Transfer Tax
c. Disqualified Organization
I. Dispositions by Foreign Corporations and Nonresident Aliens
2. U.S. Real Property Interest
b. Real Property
c. U.S. Real Property Holding Corporation
(2) Partnerships, Trusts, and Estates
(3) Interests in Other Corporations
(1) Corporations Not Holding U.S. Real Property Interests
(2) Publicly Traded Stock
(3) Interests in REITs and RICs
3. Modification of Source Rules
4. Contribution of U.S. Real Property Interest to Foreign Corporation
5. Impact on Alternative Minimum Tax
6. Coordination with Nonrecognition Provisions
7. Distributions by Foreign Corporations
8. Interests in U.S. Entities
a. Sales of Partnership, Trust, and Estate Interests by Foreign Partners and Beneficiaries
b. Distributions from Qualified Investment Entities and Sales of Interests in Qualified Investment Entities
c. Treatment of Wash Sale Transactions
9. Withholding
(2) Nonforeign Affidavit
(3) Nonpublicly Traded Domestic Corporation Affidavit
(4) Qualifying Statement
(5) Small Residences
(6) Traded Stock
(7) Applicable Wash Sales Transactions
c. Limitation on Amount Withheld
d. Liability of Agents
10. Foreign Corporation Election to Be Treated as Domestic Corporation
V. Information Reporting for Real Estate Transactions
B. Broker Reporting of Real Estate Transactions
2. Real Estate Reporting Person
b. Person Responsible for Closing Transaction
(1) Uniform Settlement Statement Used
(2) Other Closing Statement Used
(3) No Closing Statement or Multiple Closing Statements
(4) Designation Agreement
(b) Eligible Persons
(c) Form of Designation Agreement
c. Mortgage Lender
d. Transferor's Broker
e. Transferee's Broker
f. Transferee
g. Acts of Agents
3. Brokers’ Information Return
b. General Description of Real Estate Transferred
c. Gross Proceeds
(2) Selling Expenses
(3) Contingent Payments
(4) Multiple Transferors
(b) Spouses
(5) Multiple Asset Transactions
d. Gross Proceeds Disclosure
e. Requesting TINs
(2) Content of Solicitation
(3) Retention Requirement
(4) No TIN Provided
f. Residences
4. Brokers’ Customer Statement
b. Residences
5. Real Estate Transaction
b. Exempt Transactions
c. Exempt Transferors
(2) Deemed Corporations
(3) Governmental Unit
(4) Exempt Volume Transferor
d. Reportable Real Estate
(2) Ownership Interest
(3) Property Not Reportable Real Estate
e. Voluntary Reporting
6. Multiple Transferors
b. Spouses
7. Closing Date
8. Penalties
C. Mortgage Interest Reporting
2. Interest Recipient
b. Points
c. Interest Received as Agent
(2) Exception
d. Reporting by Foreign Person
(1) Foreign Recipient
(2) Foreign Payor
e. Designation of Qualified Person
(2) Qualified Person
(3) Designation Agreement
(4) Penalties
3. Reportable Interest
b. Qualified Mortgage
(2) Mortgage
(b) Certain Obligations Existing Since December 31, 1984
(c) Certain Obligations Existing Since December 31, 1987
(3) Payor of Record
(4) Lender of Record
c. Determining Amount of Interest Received
(2) Calendar Year
(1) Interest Received from Seller on Payor's Mortgage
(2) Interest Received from Governmental Unit
e. Points
(2) Limitations
(3) Construction Loans
(4) Paid Directly by Payor of Record
(5) Amounts Paid to Mortgage Brokers
f. Voluntary Reporting
4. Reimbursement of Interest on Qualified Mortgages
5. Mortgage Interest Information Return
b. Information
c. Time and Place for Filing
d. Requirement to Request and to Obtain TIN
(2) Manner of Requesting TIN
6. Payor Statement
b. Required Information
c. Time, Place, and Manner of Furnishing
7. Penalties
a. Failure to File Return or to Furnish Statement
b. Failure to Furnish TIN
c. Failure to Include Correct Information
D. Foreign Real Property Investment Reporting
2. Foreign Person Holding Direct Investments
3. Foreign Real Property Investment Information Return
Working Papers
TABLE OF WORKSHEETS
Other Resources
Bibliography
OFFICIAL
Statutes:
United States Code:
Internal Revenue Code of 1986:
Internal Revenue Code of 1954:
Public Laws:
Treasury Regulations:
Legislative History:
Treasury Rulings and Procedures:
Cases:
UNOFFICIAL
Periodicals:
1988
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