Page 94 - Virtual Currencies

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Copyright. Payments you receive for granting able gain or deductible loss results from the Amount realized. The amount you realize
the exclusive use of (or right to exploit) a copy- transfer. from a sale or exchange is the total of all the
right throughout its life in a particular medium money you receive plus the fair market value
are treated as received from the sale of prop- Bankruptcy. Generally, a transfer (other than (defined below) of all property or services you
erty. It does not matter if the payments are a by sale or exchange) of property from a debtor receive. The amount you realize also includes
fixed amount or a percentage of receipts from to a bankruptcy estate is not treated as a dispo- any of your liabilities that were assumed by the
the sale, performance, exhibition, or publication sition. Consequently, the transfer does not gen- buyer and any liabilities to which the property
of the copyrighted work, or an amount based on erally result in gain or loss. For more informa- you transferred is subject, such as real estate
the number of copies sold, performances given, tion, see Pub. 908, Bankruptcy Tax Guide. taxes or a mortgage.
or exhibitions made. Also, it does not matter if
the payments are made over the same period Gain or Loss From Fair market value. Fair market value is the
as that covering the grantee's use of the copy- Sales and Exchanges price at which the property would change hands
righted work. between a buyer and a seller when both have
If the copyright was used in your trade or reasonable knowledge of all the necessary
business and you held it longer than a year, the You usually realize gain or loss when property facts and neither is being forced to buy or sell. If
gain or loss may be a section 1231 gain or loss. is sold or exchanged. A gain is the amount you parties with adverse interests place a value on
property in an arm's-length transaction, that is
For more information, see Section 1231 Gains realize from a sale or exchange of property that
and Losses in chapter 3. is more than its adjusted basis. A loss occurs strong evidence of fair market value. If there is a
when the adjusted basis of the property is more stated price for services, this price is treated as
Easement. The amount received for granting than the amount you realize on the sale or ex- the fair market value unless there is evidence to
an easement is subtracted from the basis of the change. the contrary.
property. If only a specific part of the entire tract
Example 1. You used a building in your
of property is affected by the easement, only Table 1-1. How To Figure Whether business that cost you $70,000. You made cer-
the basis of that part is reduced by the amount You Have a Gain or
received. If it is impossible or impractical to sep- Loss tain permanent improvements at a cost of
$20,000 and deducted depreciation totaling
arate the basis of the part of the property on
which the easement is granted, the basis of the IF your... THEN you have a... $10,000. You sold the building for $100,000
plus property having a fair market value of
whole property is reduced by the amount re- adjusted basis is more
ceived. than the amount $20,000. The buyer assumed your real estate
taxes of $3,000 and a mortgage of $17,000 on
Any amount received that is more than the realized, loss. the building. The selling expenses were $4,000.
basis to be reduced is a taxable gain. The Your gain on the sale is figured as follows.
transaction is reported as a sale of property. amount realized is more
If you transfer a perpetual easement for con- than the adjusted basis, gain.
sideration and do not keep any beneficial inter- Amount realized:
est in the part of the property affected by the Cash . . . . . . . . . . . . . . . . . $100,000
Fair market value of property
easement, the transaction will be treated as a Basis. You must know the basis of your prop- received . . . . . . . . . . . . . . . 20,000
sale of property. However, if you make a quali- erty to determine whether you have a gain or Real estate taxes assumed
fied conservation contribution of a restriction or loss from its sale or other disposition. The basis by buyer . . . . . . . . . . . . . . . 3,000
easement granted in perpetuity, it is treated as of property you buy is usually its cost. However, Mortgage assumed by
a charitable contribution and not a sale or ex- if you acquired the property by gift, inheritance, buyer . . . . . . . . . . . . . . . . . 17,000
change, even though you keep a beneficial in- or in some way other than buying it, you must Total . . . . . . . . . . . . . . . . . 140,000
terest in the property affected by the easement. use a basis other than its cost. See Basis Other Minus: Selling expenses . . . (4,000) $136,000
If you grant an easement on your property Than Cost in Pub. 551. Adjusted basis:
(for example, a right-of-way over it) under con- Inherited property. If you inherited prop- Cost of building . . . . . . . . . . . . . . . . . . . . $70,000
20,000
Improvements .
demnation or threat of condemnation, you are erty and received a Schedule A (Form 8971) Total . . . . . . . . . . . . . . . . . $90,000
considered to have made a forced sale, even that indicates that the property increased the Minus: Depreciation . . . . . . . (10,000)
though you keep the legal title. Although you estate tax liability of the decedent, use a basis Adjusted basis . . . . . . . . . . . . . . . . . . . $80,000
figure gain or loss on the easement in the same consistent with the final estate tax value of the Gain on sale . . . . . . . . . . . . . . . . . $56,000
way as a sale of property, the gain or loss is property to determine your initial basis in the
treated as a gain or loss from a condemnation. property. Calculate a basis consistent with the Example 2. You own a building that cost
See Gain or Loss From Condemnations, later. final estate tax value by starting with the repor- you $120,000. You use the building in your
ted value and then making any allowed adjust- business. The building is a MACRS asset. You
Property transferred to satisfy debt. A ments. See the Instructions for Form 8971. replaced the old elevator in the building and
transfer of property to satisfy a debt is an ex- Also, see the Instructions for Form 8949 for de- sold it for $1,000. You determine the cost of the
change. tails on how to figure the basis and make any portion of the building attributable to the old ele-
adjustments. In addition, see the Instructions for vator is $5,000. Depreciation deducted on the
Note's maturity date extended. The exten- Form 8949 and the Instructions for Form 8971 old elevator portion of the building was $2,500
sion of a note's maturity date may be treated as for penalties that may apply for inconsistent ba-
an exchange of the outstanding note for a new sis reporting. before its sale. The sale of the elevator is a sale
of a portion of a MACRS asset, the building.
and materially different note. If so, that ex-
change may result in a gain or loss to the holder Adjusted basis. The adjusted basis of Your loss on the sale of the elevator is figured
as follows.
of the note. Generally, an extension will be trea- property is your original cost or other basis plus
ted as a taxable exchange of the outstanding (increased by) certain additions and minus (de-
note for a new and materially different note only creased by) certain deductions. Increases to Amount realized:
if the changes in the terms of the note are signif- basis include costs of any improvements having Cash . . . . . . . . . . . . . . . . . . $1,000
icant. Each case must be determined on its own a useful life of more than 1 year. Decreases to Adjusted basis:
facts. For more information, see Treasury Reg- basis include depreciation and casualty losses. Cost of elevator . . . . . . . . . . . . . . . . . . $5,000
(2,500)
Minus: Depreciation .
ulations section 1.1001-3. In the sale or exchange of a portion of a
Adjusted basis .
MACRS asset (discussed later), the adjusted Loss on sale . . . . . . . . . . . . . . . . . . . $2,500
$1,500
Transfer on death. The transfer of property of basis of the disposed portion of the asset is . . . . . . . . . . . . . . . . .
a decedent to an executor or administrator of used to figure gain or loss. For more details and
the estate, or to the heirs or beneficiaries, is not additional examples, see Adjusted Basis in
a sale or exchange or other disposition. No tax- Pub. 551.
Chapter 1 Gain or Loss Page 3