Subchapter O - Gain Or Loss On Disposition Of Property (Overview)

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Section 1001

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"Determination of amount of an recognition of gain or loss"

If the amount realized is more than the cost or adjusted basis of the property sold or disposed of, the difference is a gain.

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Section 1011

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"Adjusted basis for determining gain or loss"

The gain or loss on a sale or other disposition of property depends on the taxpayer's “adjusted basis,” which is the property's unadjusted or original basis adjusted as prescribed by 1016.

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Section 1014

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Basis in property from a decedent

The basis of property acquired from a decedent by bequest, devise, or inheritance, or by the decedent's estate from the decedent is generally stepped up (or down) to its fair market value as of the date of death of the decedent or alternate valuation date.

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Section 1015

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"Basis of property acquired by gifts and transfers in trusts"

In the case of property acquired by gift (whether outright or in trust), if the fair market value of the property at the time of the gift is lower than the donor's adjusted basis, the basis for determining loss is the fair market value as of the time of the gift.

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Section 1016

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"Adjustments to basis"

Adjusted basis is the original basis, plus increases for improvements and other items chargeable (i.e., added) to the capital account (with certain exceptions) less decreases for losses, receipts and other items credited to (i.e., subtracted from) the capital account, and for depreciation, obsolescence, amortization and depletion.

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Section 1017

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"Discharge of indebtedness"

When Section 108 applies, you reduce the basis of assets by the excluded income.

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Section 1019

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"Property on which lessee has made improvements"

Improvements made by a lessee do not increase or diminish the lessor's basis or adjusted basis of the leased property unless the increased value attributable to the improvements are includible in the lessor's gross income as rent.

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Section 1041

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"Transfers of property between spouses or incident to divorce"

No gain or loss is recognized on a transfer of property from an individual to a spouse and there will generally be carryover basis.

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Section 1022

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"Treatment of property acquired from a decedent dying after Dec. 31, 2009"

After Dec. 31, 2009, no more step-up basis. Instead, you'll get modified carryover.

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Section 1012

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"Basis of property -- Cost"

According to § 1012, the basis of property is its cost, except as otherwise prescribed by the Internal Revenue Code.

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Section 1013

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"Basis of property included in inventory"

The basis of property required to be included in inventory is the last inventory value of the property in the hands of the taxpayer.

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Section 1031

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"Exchange of property held for productive use or investment"

No gain or loss is recognized on the exchange of property held for productive use in a trade or business or for investment if that property is exchanged solely for property of a like kind which is to be held either for productive use in a trade or business or for investment.

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Section 1032

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"Exchange of stock for property"

A corporation does not recognize gain or loss when it transfers its own stock in exchange for money or property.

This general rule, not a specific reorganization rule, prevents the recognition of gain or loss by the acquirer on the transfer of its stock in a reorganization exchange or recapitalization.

When a security is issued by a corporation in exchange for property, no gain or loss is realized, since the corporation is merely acquiring the property in exchange for a debt obligation.

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Section 1033

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"Involuntary conversions"

A taxpayer who realizes gain on an involuntary conversion and who meets certain requirements may elect to defer the tax on all or part of the gain.

If the election is properly made, gain is recognized only to the extent that the amount realized on the conversion exceeds the cost of the replacement property, which must be purchased.

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Section 1036

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"Stock for stock of same corporation"

Where common stock is exchanged for common stock in the same corporation, or preferred stock is exchanged for preferred stock of the same corporation, no gain or loss is recognized.

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Section 1059

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Section 1059 requires a corporate shareholder to reduce its stock to the extent of the nontaxed portion of any “extraordinary dividend” (i.e., a dividend equaling or exceeding 5 percent for preferred stock and 10 percent for other stock of the underlying stock basis, unless the stock was held for more than two years before the “dividend announcement date” or satisfies certain other conditions).