Page 95 - Virtual Currencies

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Example 3. You own a bulldozer that cost buyer returns the property in a later tax year, under Section 1231 Gains and Losses. You
you $30,000. You use the bulldozer in your you must recognize gain (or loss, if allowed) in cannot deduct a loss on the personal part. Any
business. The bulldozer is a MACRS asset. You the year of the sale. When the property is re- gain or loss on the part of the home used for
replaced the old bucket on the bulldozer and turned in a later tax year, you acquire a new ba- business is an ordinary gain or loss, as applica-
sold it for $800. You determine the cost of the sis in the property. That basis is equal to the ble, reportable on Form 4797. Any gain or loss
portion of the bulldozer attributable to the old amount you pay to the buyer. on the part producing income for which the un-
bucket is $4,000. Depreciation deducted on the derlying activity does not rise to the level of a
old bucket portion of the bulldozer was $3,800 Bargain Sale trade or business is a capital gain or loss, as
before its sale. The sale of the bucket is a sale applicable. However, see Disposition of depre-
of a portion of a MACRS asset, the bulldozer. If you sell or exchange property for less than fair ciable property not used in trade or business in
Your gain on the sale of the bucket is figured as market value with the intent of making a gift, the chapter 4.
follows. transaction is partly a sale or exchange and
partly a gift. You have a gain if the amount real- Home used partly for business or rental. If
Amount realized: ized is more than your adjusted basis in the you use property partly as a home and partly for
Cash . . . . . . . . . . . . . . . . . . . $800 property. However, you do not have a loss if the business or to produce rental income, the com-
Adjusted basis: amount realized is less than the adjusted basis putation and treatment of any gain on the sale
Cost of bucket . . . . . . . . . . . . $4,000 of the property. depends partly on whether the business or
Minus: Depreciation . . . . . . . . (3,800) rental part of the property is considered within
Adjusted basis . . . . . . . . . . . . . . . . . . . . $200 Bargain sales to charity. A bargain sale of your home or not. See Business or Rental Use
Gain on sale . . . . . . . . . . . . . . . . . . $600 property to a charitable organization is partly a of Home in Pub. 523.
sale or exchange and partly a charitable contri-
Amount recognized. Your gain or loss real- bution. If a charitable deduction for the contribu- Property Changed to
ized from a sale or exchange of property is usu- tion is allowable, you must allocate your adjus- Business or Rental Use
ally a recognized gain or loss for tax purposes. ted basis in the property between the part sold
This includes a gain or loss realized from a sale and the part contributed based on the fair mar- You cannot deduct a loss on the sale of prop-
or exchange of a portion of a MACRS asset. ket value of each. The adjusted basis of the part erty you purchased or constructed for use as
Recognized gains must be included in gross in- sold is figured as follows. your home and used as your home until the
come. Recognized losses are deductible from time of sale.
gross income. However, your gain or loss real- Adjusted basis of Amount realized
ized from certain exchanges of property is not entire property × (fair market value of part sold) You can deduct a loss on the sale of prop-
recognized for tax purposes. See Nontaxable erty you acquired for use as your home but
Exchanges, later. Also, a loss from the sale or Fair market value of entire changed to business or rental property and
other disposition of property held for personal property used as business or rental property at the time
use is not deductible, except in the case of a Based on this allocation rule, you will have a of sale. However, if the adjusted basis of the
casualty or theft loss. gain even if the amount realized is not more property at the time of the change was more
than your adjusted basis in the property. This than its fair market value, the loss you can de-
Interest in property. The amount you realize allocation rule does not apply if a charitable duct is limited.
from the disposition of a life interest in property, contribution deduction is not allowable.
an interest in property for a set number of years, See Pub. 526 for information on figuring Figure the loss you can deduct as follows.
or an income interest in a trust is a recognized your charitable contribution. 1. Use the lesser of the property's adjusted
gain under certain circumstances. If you re- basis or fair market value at the time of the
ceived the interest as a gift, inheritance, or in a Example. You sold property with a fair mar- change.
transfer from a spouse or former spouse inci- ket value of $10,000 to a charitable organization
dent to a divorce, the amount realized is a rec- for $2,000 and are allowed a deduction for your 2. Add to (1) the cost of any improvements
ognized gain. Your basis in the property is dis- contribution. Your adjusted basis in the property and other increases to basis since the
regarded. This rule does not apply if all interests is $4,000. Your gain on the sale is $1,200, fig- change.
in the property are disposed of at the same ured as follows. 3. Subtract from (2) depreciation and any
time. other decreases to basis since the
Example 1. Your parent dies and leaves Sales price . . . . . . . . . . . . . . . . . . . . . . . . . $2,000 change.
the farm to you for life with a remainder interest Minus: Adjusted basis of part sold ($4,000 × (800) 4. Subtract the amount you realized on the
to your younger sibling. You decide to sell your ($2,000 ÷ $10,000)) . . . . . . . . . . . . . . . . . . . $1,200 sale from the result in (3). If the amount
Gain on the sale
life interest in the farm. The entire amount you . . . . . . . . . . . . . . . you realized is more than the result in (3),
receive is a recognized gain. Your basis in the treat this result as zero.
farm is disregarded. Property Used Partly The result in (4) is the loss you can deduct.
Example 2. The facts are the same as in for Business or Rental
Example 1, except that your sibling joins you in Generally, if you sell or exchange property you Example. You changed your main home to
selling the farm. The entire interest in the prop- used partly for business or rental purposes and rental property 5 years ago. At the time of the
erty is sold, so your basis in the farm is not dis- partly for personal purposes, you must figure change, the adjusted basis of your home was
regarded. Your gain or loss is the difference be- the gain or loss on the sale or exchange sepa- $75,000 and the fair market value was $70,000.
tween your share of the sales price and your rately for the business or rental part and the This year, you sold the property for $55,000.
adjusted basis in the farm. personal-use part. You must subtract deprecia- You made no improvements to the property but
you have depreciation expenses of $12,620
tion you took or could have taken from the basis
Canceling a sale of real property. If you sell of the business or rental part. However, see the over the 5 prior years. Although your loss on the
real property under a sales contract that allows special rule, later, for a home used partly for sale is $7,380 [($75,000 − $12,620) − $55,000],
the buyer to return the property for a full refund business or rental. You must allocate the selling the amount you can deduct as a loss is limited
and the buyer does so, you may not have to price, selling expenses, and the basis of the to $2,380, figured as follows.
recognize gain or loss on the sale. If the buyer property between the business or rental part
returns the property in the same tax year of and the personal part.
sale, no gain or loss is recognized. This cancel-
lation of the sale in the same tax year it occur- Gain or loss on the business or rental part of
red places both you and the buyer in the same the property may be a capital gain or loss or an
positions you were in before the sale. If the ordinary gain or loss, as discussed in chapter 3

Page 4 Chapter 1 Gain or Loss