Beginning in 2011, tax return preparers are required to meet the requirement of passing a competency exam in order to officially become a registered tax return preparer. Examiners expect from you the basic foundation on the subject of taxes in order to deliver an accurate and complete income tax return to your clients. If you are planning to take the IRS competency exam, this series of articles will introduce you to specific topics included in the test. In this essay, a brief reference is made about the tax treatment of transactions in property.
When a property is object of a transaction (sale, purchase, exchange, or other kind of disposition), usually at least two parties are involved: the seller and the buyer. From the income tax return preparation point of view, a primary aspect related to transactions in property is that the transaction has income tax effect for the seller but not on the buyer. So, the party selling or disposing of the property is the taxpayer-client. Information about transactions in property, where the taxpayer-client is the buyer, is used only to determine the basis of that property for the purpose of the sale or disposition of that property.
With regard to the tax treatment of income, gains or losses may result from the disposition or sale of properties by the party making the sale or disposing of the property.
How does tax regulation treat a sale or disposition of a property, and what should the registered tax return preparer's foundation be on this topic to satisfy the competency requirements?
The IRS return preparer test specification, which outlines all major topics in seven domains, sub-domains and detailed topics, includes four specific tax issues related to transaction in property candidates need to be familiar with to be successful in the competency exam.
These tax issues are: 1) Capital gains and losses (short-term and long-term) ; 2) Determination of the basis of properties; 3) Disposition of non-business assets; 4) Sale of principal residence.
An important concept behind the tax treatment of property transactions is the distinction regulations make between realized gain or loss and recognized gain or loss. The amount realized is the difference between the selling price of a property and any costs of disposition incurred by the seller.
In a algebraic sum, realized gains or losses = amount realized from the sale €" adjusted basis of the property
The rule calls for all realized gains to be recognized or taxable unless a specific part of the tax laws excludes the gain. Realized losses have circumstantial tax treatment and therefore, they may or may not be recognized or deductible. For example: losses resulting from the disposition of personal use property are not deductible.
Another example, if a single taxpayer sold his or her principal residence for $700,000 and the basis of the property is $400,000, the realized gain is $300,000 but the recognized gain is $50,000 because of a $250,000 ($500,000 for married) deductible allowed by law.
Recognized gains and losses may be classified as ordinary gains or as capital gains. Ordinary gains are fully taxable. Ordinary losses are fully deductible. Capital gains and losses use a netting rule order to determine the end gain or loss.
A solid knowledge foundation on the subject of taxes, required to pass the competency exam, is built up step by step and with a persistent interest in learning more about the subject.
In the next article, we will focus on €deductions€; don't miss it!
Visit us at: http://1040examprep.com/
€
When a property is object of a transaction (sale, purchase, exchange, or other kind of disposition), usually at least two parties are involved: the seller and the buyer. From the income tax return preparation point of view, a primary aspect related to transactions in property is that the transaction has income tax effect for the seller but not on the buyer. So, the party selling or disposing of the property is the taxpayer-client. Information about transactions in property, where the taxpayer-client is the buyer, is used only to determine the basis of that property for the purpose of the sale or disposition of that property.
With regard to the tax treatment of income, gains or losses may result from the disposition or sale of properties by the party making the sale or disposing of the property.
How does tax regulation treat a sale or disposition of a property, and what should the registered tax return preparer's foundation be on this topic to satisfy the competency requirements?
The IRS return preparer test specification, which outlines all major topics in seven domains, sub-domains and detailed topics, includes four specific tax issues related to transaction in property candidates need to be familiar with to be successful in the competency exam.
These tax issues are: 1) Capital gains and losses (short-term and long-term) ; 2) Determination of the basis of properties; 3) Disposition of non-business assets; 4) Sale of principal residence.
An important concept behind the tax treatment of property transactions is the distinction regulations make between realized gain or loss and recognized gain or loss. The amount realized is the difference between the selling price of a property and any costs of disposition incurred by the seller.
In a algebraic sum, realized gains or losses = amount realized from the sale €" adjusted basis of the property
The rule calls for all realized gains to be recognized or taxable unless a specific part of the tax laws excludes the gain. Realized losses have circumstantial tax treatment and therefore, they may or may not be recognized or deductible. For example: losses resulting from the disposition of personal use property are not deductible.
Another example, if a single taxpayer sold his or her principal residence for $700,000 and the basis of the property is $400,000, the realized gain is $300,000 but the recognized gain is $50,000 because of a $250,000 ($500,000 for married) deductible allowed by law.
Recognized gains and losses may be classified as ordinary gains or as capital gains. Ordinary gains are fully taxable. Ordinary losses are fully deductible. Capital gains and losses use a netting rule order to determine the end gain or loss.
A solid knowledge foundation on the subject of taxes, required to pass the competency exam, is built up step by step and with a persistent interest in learning more about the subject.
In the next article, we will focus on €deductions€; don't miss it!
Visit us at: http://1040examprep.com/
€
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