Indiana daily times. [volume] (Indianapolis [Ind.]) 1914-1922, 1920-03-06
INCOME TAX FACTS
YOU SHOULD KNOW

Many taxpayers last year realized
large profits from the sale of property,
real and personal, all Of which must be
accounted for in their return q income.
PROFIT from such transactions - taxable
! income OF the year In which realized,
though 1t may have actually accrued in
/ other years. If, however, any part Of
the profit accrued prior TO March J.
went into effect. IL is not taxable.
In such cases the fair market value Of
the property of March ], 1913, IS de-
Quoted from the selling price to deter
mine the amount Of profit For example,
| real estate bought in 1910 for $4,000 de
velops rapidly in value, 50 that on
March ], 1913, IL was worth $4,000, and
similar pieces sold for that price In
~ ieig II was sold for 1900. The profit
Is 81 800, but as on March /, 1913. its fair
market value was $4,000, only the differ
ence between that amount and the
amount for which 1t was sold, or $500.
Is taxable income.
In the purchase and sale of real es-
tate, brokers' fees, commissions, lawyers
fees, stamp taxes, recording fees etc.
are considered part Of the cost and may
he deducted from the selling price in as
certaintng profit. The rule is the same
where personal property is bought and
sold at a profit.
r. IN order to sell for a higher price.
the property Is bettered or improved, as
DIV the erection Of a building the ex-
pense OF such Improvement may be add
cd TO tho cost and deducted by the owner
IN determining the amount of his profit
The above items, II deducted from gross
Income when the expenditure was made.
can not later be considered In arriving
az the profit, or, in other words, can not
ne Included as business expense and
also as part OF the cost Of property.
The selling price Of property includes
promtssory notes, securities. or anything
accepted Is cash. and the profit must be
included as income when received. In
n1 Inv vt ,FasT .Hr-
small initial payment and deferred pay
ments are governed by special treasury
regulations. The profit upon an INSTALL
ment sale is apportioned to each install
ment and is only reported for taxation
as collected. Except where these special
regulations for installments sales apply,
payments must be considered as If the
entire price was paid in cash. In case
any notes should be worthless, or a de-
ferred payment can not be collected
when due, the taxpayer, after exhaust
ing every reasonable means for cOllec-
ton, may charge the amount Off as a bad
debt in a subsequent year. The sale OF
the property is regarded as a closed
transaction and the collection of the
notes as new Item.
The return must show the kind of
property which the profit was real
lied, the name and address Of the pur-
chaser or broker, the sale price, date
acquired, cost or market value as of
March /, 1913. If acquired prior thereto
-
and depreciation subsequently sus-
tained.
In the case of property acquired prior
10 March l. 1913. the return must show
how the fair value of that date is de
termined. In the case Of real estate
machinery, merchandise, or other prop
erty which does not have a public mar
ket price, any relevant evidence may be
considered. such as the opinion of ex-
pertS prices asked or offered for similar
property at that time. and other facts.
The value as of that date should not in
clude any prospective or speculative
profits, but should represent the price at
which the property could have been sold
under conditions then existing.
In determining the. profit on the sale
of property the amount of depreciation
as we'll as the actual cost of such prop
erty must he considered. For example,
an owner sells In 1919 for $4,000 build
ing which In 1915 cost him $4,000.
Figuring 8 per cent annually as the
proper allowance for depreciation, the
total allowances is 81, 40, which amount
must be included I'm his profit on the
transaction. Because the depreciation
represents a loss in prior years il may
not be deducted in ascertaining the
profits realized In the taxable year.