Wrap-Up Questions for Chapter 10
1. What policy (policies) is served by the exceptions to the definition of “capital asset” in §§ 1221(a)(1, 2, 3, 4, 6, 7, 8)?
2. In Fribourg Navigation Co. v. Commissioner, 383 U.S. 272 (1966), the Supreme Court held that a taxpayer was entitled to depreciation deduction up to the date it sold an asset. In the days before § 1245 (but after § 1231), why would this have been important?
3. Why should capital loss carryovers expire – and simply disappear – on the death of the taxpayer?
4. In what ways does § 1231 help facilitate growth within our economy?
5. Why should a taxpayer not be permitted to deduct the cost of obtaining tax-exempt income?
What have you learned?
Can you explain or define –
•What is a capital asset? What types of assets are not capital assets?
•Describe how § 1(h) works?
•Describe the netting of LT/ST capital gains/losses that § 1221 prescribes?
•To what extent does § 1211(b) allow an individual taxpayer to offset capital gains (LT or ST) with capital losses (LT or ST)?
•What is depreciation recapture? Why is it needed? What is its effect?
•What is § 1231 property? What tax treatment does the Code provide for the sale or exchange of § 1231 property? In what way(s) does § 1231 implement a “heads-I-win-tails-you-lose” scheme with the taxpayer?
•What is a like-kind exchange? What is the tax treatment of a like-kind exchange?
•How does Congress defer recognizing gain without forgiving it?
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