Special Property Tax Transactions - Lesson 1 - YouTube

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.