A section of the Internal Revenue Code that mandates that any transfer of property from one spouse to another is income tax-free. No deductible loss or taxable gain can be declared. This section applies to transfers during marriage as well as in the divorce process. Section 1041 was enacted in order to simplify the consolidation of marital assets. Section 1041 does not apply to transfers to nonresident-alien spouses, certain transfers of mortgaged property between trusts or transfers of U.S. savings bonds. This section also places the tax burden on the recipient of any transfer of marital property incident to a divorce (the property is treated as a gift); therefore, it can be in the interest of a divorcing spouse to negotiate for assets that have minimal taxable appreciation.
A tax document used to report the incomes, losses and dividends of a business's partners or S corporation's shareholders. Rather than being a financial summary for the entire group, the Schedule K-1 document is prepared for each partner or shareholder individually. For an S Corporation, Form 1120S is filled out, while for a partnership, Form 1065 is submitted. While not filed with an individual partner or shareholder's tax return, financial information found in Schedule K-1 is sent to the IRS along with either Form 1120S or Form 1065. Because the tax treatment of partnerships and other business types falling under Schedule K-1 can be different than normal income, investors should pay close attention since income earned from this sort of investing can trigger an alternative minimum tax.
A U.S. income tax form used by taxpayers to report their realized capital gains or losses. Investors are required to report their capital gains (and losses) from the sales of assets, which result in different cash values being received for them than what was originally paid, in order to affix some amount of taxation to the income and wealth that is generated through investment activities. Schedule D is a complicated form that has confounded investors for years. However, changes in legislation came into effect with the Jobs And Growth Tax Relief Reconciliation Act of 2003, which made qualifying dividends subject to capital gains tax instead of normal income tax, the form and its applicable regulations have become moderately less complex.
A U.S. income tax form used by taxpayers to report itemized deductions, which can help reduce an individual's federal tax liability. Expenses that can be itemized and claimed on the form include medical and dental expenses, amounts paid for particular taxes and interest expenses as well as specific losses due to theft. In the U.S. income tax system, taxpayers have the option of either claiming a standard deduction on their tax returns, or itemizing their expenses and claiming the total itemized deductions. only taxpayers whose total itemized deductions are greater than the standard deduction will select this option.
A section of the IRS code stating that a gain from selling real estate that has been subjected to accelerated depreciation should be treated as ordinary income instead of a capital gain. Generally capital gains taxation rates are more favorable than income tax.
A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property - the payment of tax is deferred until property is sold with no re-investment. The idea behind this section of the tax code is that when an individual or a business sells a property to buy another, no economic gain has been achieved. There has simply been a transfer from one property to another. For example, if a real estate investor sells an apartment building to buy another one, he or she will not be charged tax on any gains he or she made on the original apartment building. When the investor sells the original apartment building and purchases a new one, the value used from the original to buy the new one has not changed - the only thing that has changed is where the value is being held.
A form attached to Form 1040 that is used to calculate the standard deduction for certain tax filers. Schedule L is only used by taxpayers who are increasing their standard deduction by reporting state or local real estate taxes, taxes from the purchase of a new motor vehicle or from a net disaster loss reported on Form 4684. Refunds and rebates already received on real estate taxes reduce the amount of additional standard deduction for which a taxpayer may be eligible. With regards to motor vehicles, taxpayers in states that do not charge sales tax but levy another fee on the purchase of a new vehicle can treat those fees as a tax for the purpose of this form. Taxpayers should check to see if an increased standard deduction will provide the same tax benefit as itemizing deductions.
A financial transaction involving a capital loss or gain on an investment held in a foreign currency. A Section 988 transaction relates to IRS Section 988, which was applied to all tax years after December 31, 1986. Per IRS rules, most gains from foreign currency transactions are to be treated as ordinary income, whether earned by an individual or a corporation. Gains and losses from these transactions are typically viewed outside of any gain or loss due to exchange rate changes between the U.S. dollar and the foreign currency. 988 Transactions include those surrounding holders of foreign bonds (who will receive interest and principle in a domestically "nonfunctional" currency), foreign currency futures or other derivatives, as well as accrued expenses or receipts in a foreign currency. The most common securities affected include: futures positions, foreign exchange positions and international bonds. For instance, if a U.S. bank issues a bond that is denominated in the euro, it is considered a 988 transaction. If an investor makes an election before the transaction is entered into, he or she may be able to classify the gain or loss on a specific investment as a capital gain rather than ordinary income. This most often applies to forward contract transactions, options and futures.
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