The Washington herald., 1920-03-05
Income Tax. Facts
You Should Know

Many taxpayers last year realized
large profits from the sale of prop
erty, real and personal, all of which
must be accounted for in their re-
turn of income. Profit from such
transactions is taxable income of
the year in which realized, though
it may have actually accrued in
other years. If, however, any part
of the profit accrued prior to March
l, 1913, when the first income tax
law went into effect, ii is not tax
able.
In such cases the fair market
value of the property of March l.,
1913. is deducted from the selling
price to- determine the amount of
profit. For example, real estate
bought in 1910 for $4,000 develops
rapidly in value, so that on March l.,
1913, is was worth $4,000, and SINH
lar pieces sold for that price. In
1919 it was sold for s17,500. The
profit is $500, but as on March !,
1913, its fair market value was
Sic. 900, only the difference between
that amount and the amount for
which il was sold, or s2.5Oo, is tax
able income.
Deductions Allowed.
In the purchase and sale of real
estate, brokers' fees, commissions,
lawyers fees. stamp taxes, record
ing fees, etc, are considered part Of
the cost and may be deducted from
the selling price in ascertainine
profit. The rule is the same where
personal property is bought and sold
at a profit.
If, in order to sell for a higher
price, the property is bettered or
improved, as by the erection of a
building, the expense of such i'm
provement may be added to the cost
and deducted by the owner, in de-
termining tine amount of his profit.
The above items, il deducted from
gross income when the expenditure
was made. can not later he consid-
cred in arriving at the profit. or, in
other words. can not be included
as a business expense and also as a
part Of the cost of property.
Selling Price.
The selling price of property in
cludes pronissory notes. securities,
or anything accepted as cash, and
the profit must be included as In,
come when received. lnstallment
sales involving a relatively small
initial payment and deferred pay
ments Sre governed by special
Treasury regulations. The profit
upon an fnstallment sale Is appor-
toned to each installment and is
only reported for taxation as coll
lected. Except where these special
regulations for installments sales
apply, notes, mortgages, and other
deferred payments must be consid-
cred as IL the entire price was paid
in cash. In case any notes should
be worthless, or a deferred payment
cannot be collected when due. the
staxpayer. after exhausting every
reasonable means for collection,
may charge the amount off as a bad
debt In subsequent year. The sale
of the, property is regarded as a
closed transaction and the collec-
ton Of the notes as a new item.
The return must show the kind of
property on which the profit was
realized, the name and address of
the purchaser or broker, the sale
price, date acquired, cost or market
value as of March /. 1913, IL ac-
quired prior thereto. cost Of subse-
quent improvements. IL any, and de-
probation subsequently sustained.
No Speculative Profits.
In the case of property acquired
prior to March l.. 1919, the return
must show how the fair value of
that date is determined. In the
case of real estate. machinery, mer-
chandise, or other property which
does not have a public market price,
any relevant evidence may be con-
sidered, 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 include any prospec-
pective 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 de-
probation as well as the actual cost
of such property must be consid-
cred. For example. an owner sells
in 1919 for $4,000 a building which
in 1915 cost him $4,000.
Figuring per cent annually as
the proper allowance for deprecia-
.tion. the total allowance Is s1.440.
which amount must be included In
his profit on the transaction. Be-
cause the depreciation represents a
loss in prior years II may not be