RE: Tax- Income and Loss in Barter Exchanges

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Jarndyce
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RE: Tax- Income and Loss in Barter Exchanges

Postby Jarndyce » Sat Nov 13, 2010 1:57 pm

Is this a correct statement?

If A traded a piano worth $240 (which was also A's basis) to B for an antique chair worth $200 (which was also B's basis), then B has gross income of $40 (Increase from giving basis of $200 to receiving GI with FMV of $40). B's adjusted basis in the piano (after recognizing $40 of GI) is $240.

A does not get to take a loss, and his adjusted basis in the chair is $200. Is this right, or would A maintain her basis of $240, allowing her to claim a loss once she sells the chair? My hunch is that the $40 just disappears... so, if A held on to the chair until its value was $240 and he sold it for that much, then he would have gross income of $40, even though his basis in what he gave for the chair was $240.

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Unitas
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby Unitas » Sat Nov 13, 2010 2:07 pm

What kind of question is this? For a balance sheet or what? Business I take it?

spondee
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby spondee » Sat Nov 13, 2010 2:22 pm

Why does A not take a loss? Is there a code section for that?

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Aberzombie1892
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby Aberzombie1892 » Sat Nov 13, 2010 2:35 pm

Jarndyce wrote:Is this a correct statement?

If A traded a piano worth $240 (which was also A's basis) to B for an antique chair worth $200 (which was also B's basis), then B has gross income of $40 (Increase from giving basis of $200 to receiving GI with FMV of $40). B's adjusted basis in the piano (after recognizing $40 of GI) is $240.

A does not get to take a loss, and his adjusted basis in the chair is $200. Is this right, or would A maintain her basis of $240, allowing her to claim a loss once she sells the chair? My hunch is that the $40 just disappears... so, if A held on to the chair until its value was $240 and he sold it for that much, then he would have gross income of $40, even though his basis in what he gave for the chair was $240.


If they traded the two items, B would have an adjusted basis of $200 in the piano. B would not have to deal with paying tax on the difference (between $200 and in the future price when B sells it) until B sells it.

A would have a $200 basis in the chair.

EDIT: This is federal income tax for anyone who doesn't know. It's interesting and I recommend you (everyone) take it.

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nealric
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby nealric » Sat Nov 13, 2010 2:56 pm

General advice for tax:

Go to the Code. If the Code doesn't answer your question, go to the regs. If the regs don't answer your question, start looking at cases. Never rely on a "hunch" when doing tax work. If you are a complete n00b to an area of tax, you may want to start with a treatise.
Last edited by nealric on Sat Nov 13, 2010 2:57 pm, edited 1 time in total.

spondee
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby spondee » Sat Nov 13, 2010 2:56 pm

What is the authority for your answer? Why would they only use $200 as the FMV of the exchange?

If we know the FMV of the piano is $240 and the chair is $200, then under §1001(b), wouldn't the amount realized in each case be the FMV of the item received? So, B would realize a $40 gain; A would realize a $40 loss; B would have basis of $240 in the piano; A would have a basis of $200 in the chair.

upgrade
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby upgrade » Sat Nov 13, 2010 4:50 pm

Who would trade $240 for $200?

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kalvano
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby kalvano » Sat Nov 13, 2010 5:03 pm

upgrade wrote:Who would trade $240 for $200?


Liberals.

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nealric
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby nealric » Sat Nov 13, 2010 5:47 pm

What is the authority for your answer? Why would they only use $200 as the FMV of the exchange?



Well, the item was actually sold/exchanged for $200 of consideration. That indicates the FMV was $200. Therefore the item was not actually "worth" $240 unless there was some boot. Too lazy to look it up, but there is a case out there to the effect that actual sale/exchange price is presumed to equal the FMV of the property.

Who would trade $240 for $200?


Transaction costs of selling the item exceed the cost of trading by more than $40.

CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by
U.S. Treasury Regulations, Nealric informs you that any
U.S. tax advice contained in this communication was not intended or written to be used, and cannot be
used, for the purpose of (i) avoiding penalties under the Internal
Revenue Code or (ii) promoting, marketing or recommending to another
party any transaction or matter addressed herein. 8)

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thucydides
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby thucydides » Sat Nov 13, 2010 11:07 pm

nealric wrote:Too lazy to look it up, but there is a case out there to the effect that actual sale/exchange price is presumed to equal the FMV of the property.


Philadelphia Park Amusement v. United States (126 F.Supp. 184)

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thucydides
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Re: RE: Tax- Income and Loss in Barter Exchanges

Postby thucydides » Sat Nov 13, 2010 11:18 pm

Aberzombie1892 wrote:
Jarndyce wrote:Is this a correct statement?

If A traded a piano worth $240 (which was also A's basis) to B for an antique chair worth $200 (which was also B's basis), then B has gross income of $40 (Increase from giving basis of $200 to receiving GI with FMV of $40). B's adjusted basis in the piano (after recognizing $40 of GI) is $240.

A does not get to take a loss, and his adjusted basis in the chair is $200. Is this right, or would A maintain her basis of $240, allowing her to claim a loss once she sells the chair? My hunch is that the $40 just disappears... so, if A held on to the chair until its value was $240 and he sold it for that much, then he would have gross income of $40, even though his basis in what he gave for the chair was $240.


If they traded the two items, B would have an adjusted basis of $200 in the piano. B would not have to deal with paying tax on the difference (between $200 and in the future price when B sells it) until B sells it.

A would have a $200 basis in the chair.

.


Also: TITCR. B will recognize the gain when he sells the piano for the FMV (presumably $240), using the 1001(a) computation [Amount Realized ($240) - Adjusted Basis ($200) = Realized Gain ($40)]




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