Chapter 11 Key Terms

Question	Answer
Depreciation Recapture	The portion of a corporate taxpayer's gain on real property that is converted from §1231 gain to ordinary income.
§1231 Assets	Depreciable or real property used in a taxpayer's trade or business owned for more than one year.
§1231 look-back rule	A tax rule requiring taxpayers to treat current year net §1231 gains as ordinary income when the taxpayer has deducted a §1231 loss as an ordinary loss in the five years preceding the current tax year.
§1245 property	Tangible personal property and intangible property subject to cost recovery deductions.
§1250 property	real property subject to cost recovery deductions.
Adjusted basis	an asset’s carrying value for tax purposes at a given point in time, measured as the initial basis (for example, cost) plus capital improvements less depreciation or amortization. Also called adjusted tax basis.
Amount realized	the value of everything received by the seller in a transaction (cash, FMV of other property, and relief of liabilities) less selling costs.
Boot	property given or received in an otherwise nontaxable transaction such as a like-kind exchange that may trigger gain to a party to the transaction. The term boot derives from a trading expression describing additional property a party to an exchange might throw in “to boot” to equalize the exchange.
Capital asset	in general, an asset other than an asset used in a trade or business or an asset such as an account or note receivable acquired in a business from the sale of services or property.
Deferred like-kind exchange	a like-kind exchange where the taxpayer transfers like-kind property before receiving the like-kind property in exchange. The property to be received must be identified within 45 days and received within 180 days of the transfer of the property given up.
Depreciation recapture	the conversion of §1231 gain into ordinary income on a sale (or exchange) based on the amount of accumulated depreciation on the property at the time of sale or exchange.
Direct conversions	when a taxpayer receives noncash property rather than a cash payment as a replacement for property damaged or destroyed in an involuntary conversion.
Indirect conversions	receipt of money or other property as a replacement for property that was destroyed or damaged in an involuntary conversion.
Installment sales	sales for which taxpayers receive payment in more than one period.
Involuntary conversions	direct or indirect conversions of property through natural disaster, government condemnation, or accident that allows a taxpayer to defer realized gain if certain requirements are met.
Like-kind exchange	a nontaxable (or partially taxable) trade or exchange of assets that are similar or related in use.
Nonrecaptured net §1231 loss	a net §1231 loss that is deducted as an ordinary loss in one year and has not caused subsequent §1231 gain to be taxed as ordinary income.
Ordinary asset	an asset created or used in a taxpayer’s trade or business (e.g., accounts receivable or inventory) that generates ordinary income (or loss) on disposition.
Production of income	a for-profit activity that doesn’t rise to the level of a trade or business.
Qualified replacement property	property acquired to replace property damaged or destroyed in an involuntary conversion. It must be of a similar or related use to the original property even if the replacement property is real property (e.g., rental real estate for rental real estate).
Realized gain or loss	the difference between the amount realized and the adjusted basis of an asset sold or otherwise disposed of.
Recognized gains or losses	gains or losses included in gross income on a taxpayer’s tax return. This is usually the realized gain or loss unless a nonrecognition provision applies.
Substituted basis	the transfer of the tax basis of stock or other property given up in an exchange to stock or other property received in return.
Tax-deferred transaction	a transaction where at least a portion of the realized gain or loss is not currently recognized.
Third-party intermediaries	people or organizations that facilitate the transfer of property between taxpayers in a like-kind exchange. Typically, the intermediary receives the cash from selling the property received from the taxpayer and uses it to acquire like-kind property identified by the taxpayer.
Unrecaptured §1250 gain	a type of §1231 gain derived from the sale of real estate held by a noncorporate taxpayer for more than one year in a trade or business or as rental property attributable to tax depreciation deducted at ordinary tax rates. This gain is taxable at a maximum 25 percent capital gains rate.

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Chapter 11 Key Terms

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	Created by Janeal Grisak over 2 years ago