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Dealings in Property
Gain/Loss Realization
General Rules
1. In order to realize a gain, there must be a realized.
a. Realization event( Sale or disposition (exchange) of property
i. Exchange only when properties are materially different. Reg §1.1001-1.
1. Materially different: Different legal entitlements/rights. Cottage Savings.
a. Modification of debt instruments could also result in different legal entitlements to lender( gain!
2. Amount realized= Money received+ FMV of any property received. §1001(b)
a. NOTE: Could also be the value of a claim satisfied by exchange of property
i. International Freighting( value of employees’ services from employer paying stock. AR would be FMV of stock!
3. Basis Rules
a. General Rule: Amount paid + tax cost (like employee getting stock or bargain purchase in employment context for compensation(fringe benefit; amounts recognized from transactions!). Additions for capitalized costs; deductions for depreciation. §1012.
i. NOTE: Upon exercise of option( basis of acquired property is exercise cost and amount paid for option.
ii. NOTE: Disregard basis of term interest unless term interest and remainder are sold together. §1001(e).
1. However, for the remainder itself, the basis changes to reflect the passage of time!
Basis Rules for Gifts
1. When FMV>Donor’s Basis( donee take donor’s basis. §1015.
2. When FMV ................
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