A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.
The rules governing partnership taxation, for purposes of the U.S. Federal income tax, are codified according to Subchapter K of Chapter 1 of the U.S. Internal Revenue Code. Partnerships are "flow-through" entities. Flow-through taxation means that the entity does not pay taxes on its income. Instead, the owners of the entity pay tax on their "distributive share" of the entity's taxable income, even if no funds are distributed by the partnership to the owners. Federal tax law permits the owners of the entity to agree how the income of the entity will be allocated among them, but requires that this allocation reflect the economic reality of their business arrangement, as tested under complicated rules.
Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender can seize and sell the collateral, but if the collateral sells for less than the debt, the lender cannot seek that deficiency balance from the borrower—its recovery is limited only to the value of the collateral. Thus, nonrecourse debt is typically limited to 50% or 60% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan.
For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions.
A real estate mortgage investment conduit (REMIC) is "an entity that holds a fixed pool of mortgages and issues multiple classes of interests in itself to investors" under U.S. Federal income tax law and is "treated like a partnership for Federal income tax purposes with its income passed through to its interest holders". REMICs are used for the pooling of mortgage loans and issuance of mortgage-backed securities and have been a key contributor to the success of the mortgage-backed securities market over the past several decades.
Under Section 1031 of the United States Internal Revenue Code, a taxpayer may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property, a process known as a 1031 exchange. In 1979, this treatment was expanded by the courts to include non-simultaneous sale and purchase of real estate, a process sometimes called a Starker exchange.
United States trust law is the body of law that regulates the legal instrument for holding wealth known as a trust.
Amount realized, in US federal income tax law, is defined by section 1001(b) of Internal Revenue Code. It is one of two variables in the formula used to compute gains and losses to determine gross income for income tax purposes. The excess of the amount realized over the adjusted basis is the amount of realized gain or realized loss.
Helvering v. Bruun, 309 U.S. 461 (1940), was an income tax case before the Supreme Court of the United States. It is notable for holding that under section 22(a) of the Revenue Act of 1932, income need not be in the form of cash for it to be taxable. Gain may occur as a result of exchange of property, payment of the taxpayer's indebtedness, relief from a liability, or other profit realized from the completion of a transaction.
The Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), enacted as Subtitle C of Title XI of the Omnibus Reconciliation Act of 1980, Pub. L. No. 96-499, 94 Stat. 2599, 2682, is a United States tax law that imposes income tax on foreign persons disposing of US real property interests. Tax is imposed at regular tax rates for the taxpayer on the amount of gain considered recognized. Purchasers of real property interests are required to withhold tax on payment for the property. Withholding may be reduced from the standard 15% to an amount that will cover the tax liability, upon application in advance of sale to the Internal Revenue Service. FIRPTA overrides most nonrecognition provisions as well as those remaining tax treaties that provide exemption from tax for such gains.
In United States income tax law, an installment sale is generally a "disposition of property where at least 1 loan payment is to be received after the close of the taxable year in which the disposition occurs." The term "installment sale" does not include, however, a "dealer disposition" or, generally, a sale of inventory. The installment method of accounting provides an exception to the general principles of income recognition by allowing a taxpayer to defer the inclusion of income of amounts that are to be received from the disposition of certain types of property until payment in cash or cash equivalents is received. The installment method defers the recognition of income when compared with both the cash and accrual methods of accounting. Under the cash method, the taxpayer would recognize the income when it is received, including the entire sum paid in the form of a negotiable note. The deferral advantages of the installment method are the most pronounced when comparing to the accrual method, under which a taxpayer must recognize income as soon as he or she has a right to the income.
A like-kind exchange under United States tax law, also known as a 1031 exchange, is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. A like-kind exchange can involve the exchange of one business for another business, one real estate investment property for another real estate investment property, livestock for qualifying livestock, and exchanges of other qualifying assets. Like-kind exchanges have been characterized as tax breaks or "tax loopholes".
In U.S. Federal income tax law, recognition is among a series of prerequisites to the manifestation of gains and losses used to determine tax liability. First, in the series for manifesting gain and loss, a taxpayer must "realize" gain and loss. This word "realize" is a term of art that refers to the realization requirement where the taxpayer must receive or lose something of monetary value. Once the realization requirement is met, gains and losses are taken into account only to the extent that they are also "recognized."
United States v. Davis, 370 U.S. 65 (1962), is a federal income tax case argued before the United States Supreme Court in 1962, holding that a taxpayer recognizes a gain on the transfer of appreciated property in satisfaction of a legal obligation.
Alderson v. Commissioner, 317 F.2d 790 was a tax law case in which the United States Court of Appeals for the Ninth Circuit reversed the ruling of the United States Tax Court that an exchange of properties does not constitute a taxable sale under § 1031(a) of the Internal Revenue Code.
In Kenan v. Commissioner, 114 F. 2d 217, the United States Court of Appeals for the Second Circuit provided a broad definition of the term "sale or exchange." The Kenan court reviewed the Commissioner's finding of a $367,687.12 deficiency in the income taxes of the trustees. The trustees or taxpayers contended "that the delivery of the securities of the trust estate to the legatee was a donative disposition of property. .. and that no gain was thereby realized." The court pointed out that "the trustees had the power to determine whether the claim should be satisfied [in cash or securities]." Thus, "[i]f it were satisfied by a cash payment securities might have been sold on which. .. a taxable gain would necessarily have been realized." The court found that "[t]he word 'exchange' does not necessarily have the connotation of a bilateral agreement which may be said to attach to the word 'sale.'" The court then held that the trustees or taxpayers had realized a gain when they used the securities to satisfy the claim on the estate.
Commissioner v. Tufts, 461 U.S. 300 (1983), was a unanimous decision by the United States Supreme Court, which held that when a taxpayer sells or disposes of property encumbered by a nonrecourse obligation exceeding the fair market value of the property sold, the Commissioner of Internal Revenue may require him to include in the “amount realized” the outstanding amount of the obligation; the fair market value of the property is irrelevant to this calculation.
Realization, for U.S. Federal income tax purposes, is a requirement in determining what must be included as income subject to taxation. It should not be confused with the separate concept of Recognition (tax).
The Law of Property Act 1989 is a United Kingdom Act of Parliament, which laid down a number of significant revisions to English property law.
Corn Products Refining Company v. Commissioner, 350 U.S. 46 (1955), is a United States Supreme Court decision that helps taxpayers classify whether or not the disposition of a commodity futures contract by a business of raw materials as part of its hedging of business risk is an ordinary or capital gain or loss for income tax purposes.
