Shizuo George Kurata - Page 5

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            sale of the five units in the amount of $111,568, and respondent                          
            adjusted petitioner's gross income accordingly because petitioner                         
            had failed to establish that he was entitled to gain deferral on                          
            the basis of an involuntary conversion of the five units.   After                         
            making a negative adjustment for an operating loss carryover,                             
            respondent increased petitioner's taxable income by $99,656.                              
                  As a threshold matter, we must determine the amount of gain                         
            realized on the sale of the five units and, in turn, the                                  
            adjustments to petitioner's gross and taxable income that are in                          
            issue.  Section 1001(a) provides, in part, that “gain from the                            
            sale or other disposition of property shall be the excess of the                          
            amount realized therefrom over the adjusted basis”.  Although,                            
            initially, the parties may have disputed the cost of the five                             
            units, it appears that the parties are now in agreement that                              
            petitioner paid a total of $228,067 for the five units, which                             
            amount constitutes petitioner's cost basis in the units.  The                             
            parties also agree on the adjustments to petitioner's basis in                            
            the five units:  (1) capital expenditures of $3,266 and                                   
            (2) depreciation on buildings and personal properties of                                  
            $129,483.  Therefore, the parties agree that petitioner's                                 
            adjusted basis in the five units is $101,850 ($101,850 = $228,067                         
            + $3,266 - $129,483).                                                                     
                  The parties, however, disagree on the amount realized by                            
            petitioner from the sale of the five units.  Petitioner reports                           

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