Question

Losses and bad debts may include transactions that may result in losses, passive losses, casualty and theft losses etc. Transaction may result in losses due to sale or exchange of property, expropriated, seized, confiscated or condemned property, abandoned property demolition of property. You are required to explain these transactions with suitable examples.

Answer 1

Sale or exchange of Property : A sale is a transfer of property for money or a mortgage, note or other promise to pay money. An exchange is transfer of property for other property or services

Example : You sold property with Fair market value of Rs 5000/- to a chartiable organization for Rs 1000/- and are allowed deduction for your contribution. Your adjusted basis in the property is Rs 2000/- Your gain is Rs 600/-

Sale Price : 1000/-

Less : Adjusted basis of part sold (2000*1000)/5000 = 400/-

Gain on Sale =Rs 600 /-

Expropriated :

When a public agency (for example : school boards, municipalities ) take private property for a purpose deemed to be in a public interest . In other words to transfer (the property of another) to one's own possession. The government may engage in expropriation for purpose that are said to be beneficial to the general public.

Seized :

To put in legal possession of feudal holdings . A notice of seizure recieved from the Internal Revenue Service that informs the reciever that in order to cover their income taxes that are due, the IRS is authorized to liquidate their assets. When an actual seizure occurs , the IRS physically removes a taxpayers's assets.

Example : When the police raid the home of the drug dealer and take his drugs.

Confiscated or condemned property :

To officially take private property away from someone, usually by legal authority

Example : Custom agents confiscated her bags

Abandoned property demolition of property :

Demolition shall be defined as the razing, wrecking or removal by any means of the entire or partial exterior of a structure

Example : The razing, wrecking or removal of an enclosed or open addition.