Subdividers may use costs of future improvements to limit gains on sales

Article Abstract:

Real estate subdividers may reduce the recognized gain from the sales of first lots by adding the estimated costs of future improvements to the actual cost of the property sold. Valid cost estimations of future improvements must meet certain conditions, including: contractual obligations of the subdivider to make future improvements; cost of improvements cannot make a depreciable asset; subdivider must consent to extend the assessment period one year after the period in which improvements are expected to be made; and the request must be filed within the year of the sale of the lots in the subdivision. Subdividers must determine the most advantageous method of allocating total basis to individual lots. Approaches to allocating costs include: relative value; assessed valuation; acreage; and selling price.

Real property tax, Real property taxes

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A simplified method for deciding whether to make fourth quarter asset purchases

Article Abstract:

Cost recovery deductions on assets purchased throughout the tax year are effected by significant purchases of personal, intangible property in the tax year's fourth quarter. Depreciation deductions can be either increased or decreased by placing assets into service during the tax year's fourth quarter. The purchase of intangible, personal property in the fourth quarter or delaying the purchase to the following year should be based on a decision rule that estimates results expenses. A decision rule aiding the purchasing decision-making process should be based on three factors: determining the maximum level of purchases allowable within the 40% limitation; determining the existence of a gain or loss situation; and determining the purchases necessary to offset lost deductions on other purchases.

Analysis, Assets (Accounting)

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Restructuring debt can provide deductions and preserve valuable tax attributes

Article Abstract:

Restructuring of debt can involve either a transfer of property or a discharge of indebtedness. A transfer is considered a sale or exchange of transferred property and is taxed under the rules for sales and results in two types of income: taxpayers' recognition of gain or loss; or taxpayers' recognition of income to the extent that the discharged debt exceeds the fair market value of the property. A discharge of indebtedness results in debt discharge income (DDI) which is ordinary income. Under Section 108, an exclusionary provision allows deferral of immediate taxation of DDI by reducing tax attributes. The remaining amounts of excluded DDI, after the calculation of offsetting tax attributes, reduces the basis of taxpayers property.

Bankruptcy

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