Amount and type of taxable gain on real estate foreclosures can be controlled by the parties

Article Abstract:

There are four venues of action that can be taken against defaulting real estate debtors: settlement at a discount; foreclosure by sale to the creditor or a third party; voluntary conveyance to the creditor; and involuntary conveyance to creditors. The handling of real estate debtors' defaults can affect the nature of losses, gains, and the discharge of indebtedness. The tax effects for debtors are predicated upon whether the debtor is solvent or insolvent at the time of settlement. Solvent debtors discharging indebtedness realize taxable income in the amount of discharged debt while insolvent debtors are allowed to exclude discharged indebtedness from gross income. Debtors claiming insolvency must have reliable evidence of their indebtedness, including the fair market value of intangible assets.

Methods

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Production and acquisition inventory costs no longer deductible under new rules

Article Abstract:

The Tax Reform Act of 1986 establishes a uniform set of rules for costs capitalized during the manufacture, construction, or acquisition of property. The new rules increase the complexity of determining indirect costs that are allocable to inventory. Wholesalers and retailers will have to adopt either the allocation rules for manufacturers, or a simplified allocation method. The additional costs that must be included in inventory under the simplified allocation rules include: storage costs, handling and processing costs, and purchasing costs.

Economic aspects, Laws, regulations and rules, Finance, Accounting and auditing, Tax reform, Products, Inventories, Cost accounting, Inventory accounting, Allocation (Accounting)

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Transfers of real estate to family members can be effective despite special rules

Article Abstract:

Tax planning for real estate will be determined by the issues generated by involved parties. Close attention must be placed on all facts related to the planned transfer that will enable the realization of benefits. The main reasons for transferring real estate to family members include enhancing deductions, deflection of income, movement of appreciation, and income conversion into capital gains.

Planning, Real estate agents, Real estate agents and brokers

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