Special Property Tax Transactions – Lesson 1


All right, let’s continue on. Let’s talk about
Special Property Tax Transactions. So we’re still in that property tax section. This is
where the government says “Hey, we’re going to giveth and taketh.” What does that mean?
It means you made money. “Oh my gosh, that’s great, come here buddy, yeah! Let me have
my 39.6 percent or my 20 percent long-term or whatever it is. Or you lost money, so sorry!
Not tax deductible.” So this is where certain gains are taxable, and losses you just don’t
get them. For example, a wash sale. A wash sale is kind
of you’re playing the stock market and you’re like “I’m gonna make it big, I’m gonna make
it big!” So you buy some stock. You spent 300 bucks on the stock. The stock has gone
down in value, so you sell it for 210. I have a $90 loss.
Okay, that’s great. Are capital gains, capital losses deductible, and taxable? Yes, they
are, however, what happens is it’s a stock I really like. I like this company, so what
I decide to do is I’m going to sell it, take the loss, but then I’m going to right away
buy it back. So I buy it back for 200 because I bought it, it went down, and it’s still
going down. Instead of taking a 90 dollar loss, and then
have a new basis of 200, the government says if you buy this, and you buy it within 30
days of buying or selling, that is called a “wash sale” and you basically, if you had
a gain, it’s taxable, but if you have a loss it’s not deductible. What happens is you just
have to add it to the basis of the stock. So instead of 200 you get no loss, basis would
be 290. So it says here, “losses from wash sales are
not deductible. If an asset that has been sold at a loss is repurchased within 30 days
of the sale, the loss may not be deducted, but it is added to the base of the repurchased
stock. This also applies to purchases obtained of identical assets in the 30 days either
before or after.” So someone might say in anticipation of selling
this “I’m going to buy some more, and then I’ll sell this one.” Same thing, so here’s
30 days, boom! This way, this way, that’s called a “wash sale.” Loss is not deductible.
What if you have a gain? Of course, gains, they’re taxable. Losses from related party
sales are not deductible, so if I sell something to a related party. If I make money, it’s
a gain. If I lose money, they go “sorry, it’s not deductible.”
Now, before we go into this in more detail what is considered a related party? And remember
we talked about a dependency exemption, right. I like to do what? “C” the IRS jack you out
of your money. How do you know if they’re a dependent? They have to be a citizen, can’t
make much income, related to you or live with you the entire year, support and no joint
tax return. As far as the related we said, if they’re
related they don’t have to live with you, but if they are … I’m sorry if they’re related
they don’t have to live with you. If they are not related they have to live with you
the entire year like your cousin. All right, for example, here’s me. Here’s
my parents, here’s my kids, here’s my bro, here’s my nephew, here’s my uncle, and the
uncle’s kid is called a cousin. Now for dependency exemptions we said “A cousin is not a relative
have to live with you the entire year.” The rest of these people could be considered a
dependent and not live with you. However, for this test this is called “related party
sales.” Sales of assets to related parties. These rules are a little different.
Here what it says, parents, kid, bro, yes, but not uncle, not aunt, not nephew, not cousin.
Those are not considered relatives for this which means that if I sold it to them for
a loss I can take that loss, but if I sell it to a related party, parents, kid, bro,
then that gain is taxable. The loss is not deductible. So what happens to the loss? Dual
basis rules. Remember the gift rules. Let’s say, for example, I have an asset, and let’s
say, for example, the carryover basis is 30, and the fair market value is 10.
So what does this say? It says the dual basis. We don’t know what the basis is until they
sell it. So if I sell it to my parents, my kid, my brother. Let’s say I sell it for eight,
then what do they do? I don’t get a loss, they get a $2 loss. They sell it for 33, I
don’t get anything. They get a gain. They sell it for here, no gain or loss. So even
though it costs me 10, it cost me 30, and it’s only worth 10, if I sold it to someone
else I get a $20 loss, but if I sell it to a related party I don’t get that loss. I give
it to them. They only get this loss or this gain. If it’s in the middle no gain or loss,
okay. So it’s the same as the gift tax rule. Remember
the gift, if someone gifts it to you. If it’s gone up in value, carryover basis, carryover
holding period. If it’s devalued that’s when the dual basis rules apply. Same kind of rules.
All right, so again, gains, taxed, losses, similar to gift tax rules which is dual basis.

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