The Richmond Virginian. (Richmond, Va.) 1910-1920, 1920-03-01
INCOME Tx FACTS
YOU SHOULD KNOW

Many taxpayers last year realized
large profits from the sale of property.
real and personal, all of which mus.
be accounted for in their return OF
income. Profit from such transactions
| is taxable Income of the year ia
which realized, though it may have
actually accrued in other years. IL.
however, any part of the PROFIT accrued
prior to March 1, 1913. when the first
income-tax law went into effect. 1t is
not taxabie.
In such cases the fair market value
OF the property of March /, 1913, is
deducted from the selling price to de-
termine the amount of profit. For ex-
ample. real estate bought in 1910 for
$4,000 develops rapidly in value. so
that on March /. 1a13.-it Was worth
$4,000, and similar pieces sold for that
price. In 1919 1t was sold for $4,000.
The profit is $500. but as on March l..
1913, its fair market value was SIS
ORC, only the difference between that
amount ard the amount for which ii
was sold, or $500. is taxable income.
in the purchase the sale of real
estate. brokers fees. commissions.
lawyers fees. stamp taxes, recording
fees, etc. are considered part of the
cost and may be deducted from the
selling price in ascertaining profit. The
rule is the same where personal prop
erty is bought and sold at profit.
IT. in order to sell for higher price.
the property Is bettered or improved,
an by the erection of building. the
expense of such Improvement may be
ADDED to the cost and deducted by the
owner in determining the amount of his
profit. The above items, IL deducted
from gross income when the expendi-
Iture was made. can not later be con-
siaered In arriving at the profit. or in
other words, cannot be included as
business expense and also as part OF
the cost of property.
The selling price of property includes
promissory notes. securities. or any
thing accepted as cash. and the pront
must be included as income when re-
ceived. Installment sales involving
relatively small initial payment and de-
ferred payments are governed by spe-
ciai treasury regulations. The profit
upon an instafiment sale is apportioned
to each installment and is only reported
for taxation as collected. Except where
these special regulations for install
ments sales apply, notes. mortgages,
and other deferred payments must be
considered as II the entire price was
paid In cash. In case any notes should
be worthless or deferred payment can
not De CStfGElSQ WhCn dUS, inc Tax
payer, after exhausting every reason
able means for collection. may charge
the amount off as a bad debt in sub
seauent year. The sale of the property
is regarded as a closed transaction and
the collection of the notes as a new
Item.
The return must show tho kind Of
property on which the profit was real
ICED. the name and address OF the pur-
f-G ar mi n
acquired. cost or market value as OF
March i. 1913. If acquired prior thereto.
cost Of subsequent improvements, IL
any. and depreciation subsequently sus-
tanned.
In the case of property acquired prior
| &c March ], 1919. the return must show
| how the fair value OF that date IL 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 NAV
be considered. such as the opinion Of
experts. prices asked or offered for sim
/ liar property at that time. and other
/ facts. The value as of that date should
not include any prospective or specuia-
| tive profits. but should represent the
price at which the property could have
been sold under conditions then exist
tng.
| In determining the profit on tho sale
TOT property the amount Of depreciation
az well as the actual cost Of such prop
terts must be considered. For example
An owner sells in 1919 for $4,000 a
building which in 1915 cost him $4,000
/ Figuring 5 per cent annually as the
proper allowance for depreciation. the
total allowance Is $40, which amount
must be included in his profit on the
transaction. Because the depreciation
represents n loss in prior years IL may
not be deducted in ascertAining the
profits realized in the taxable year.
|