Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1921-01-18
The INCOME TAX
/ Facts You Should Know for
Making 1921 Report


1920 from the sale of property, real
transactions is income. and must be
carefully accounted for in the recip-
tents return. whether it be $4,000 on
the sale of real estate or $40 on the
sale of secondhand automobile.
The return must show the kind of
property on which the profit was real
lied; the name and address of the
purchaser or broker; the sale price;
date acquired; cost of subsequent i'm
provements. if any; depreciation sub
sequently sustained; and cost or mar
ket value as of March l, 1913, IL ac-
quired prior thereto.
Profit from the sale of property is
taxable income for the year in which
the sale occurs. This profit is meas
ured by the difference between the
cost, if acquired subsequent to March
/, 1918. or the fair market value as of
March l. 1918. If acquired prior there
to, and the consideration received for
the property. The profit so deter
mined, is subject to further adjust
ment on account of additions or better
ments added to the property and to
depreciation sustained.
For example, real estate acquired in
1909 at cost of $4,000 increased in
value and on March 1, 1918. is worth
$4,000. Real estate is not subject to
depreciation, and no improvements
were made thereon. In 1920 the prop
erty was sold for $4,000. The profit
over the cost is $1,000, but the taxable
profit is only $4,000.
| The bureau has not formulated any
definite method for determining the
| market value as of March 1, 1913. What
that value was is a question of fact to
be established by the taxpayer. Sales
| of other property in the neighborhood
similarly situated on or about March
l, 1913, is evidential as to the March
value. The opinion of experts. bid
and asked prices for similar property,
and any other relevant evidence or
facts with respect to value on March
!, 1913, may be placed in the record.
ALLOWABLE DEDUCTIONS
| In the purchase and sale of real es-
tate brokers' fees, commissions, law
yers' fees, recording fees and like ex-
penses connected with the transaction
/ are considered Fart of the cost and
may BE- deducted from the selling price
in determining profit. If, in order to
sell for higher price, property is i'm
! proved, as when house is repainted
or an automobile oYerhauled, the ex-
pense may be added to the cost Such
! items. however, if deducted from
gross income when the expenditures
were made, can not later be considered
in arriving at the profit; or in other
words. can not be included as a bust
ness expense and also as a part of the
cost of the property.
The selling price of property in
cludes notes, mortgages, securities, or
anything accepted as cash, and the
profit must be included as income
when received. Instalment sales, in
! volving small initial payment, are
governed by special Treasury regula-
/ tons. The profit is 'apportioned to
each instalment and is reported for
taxation as collected. Except where
these special regulations apply. notes,
mortgages, and other deferred pay
ments must be considered as if the
entire amount was paid in cash
! If. in the latter instance, d note is
/ ASaAAN' WI thACSss, VI IL 'ut1eFTeu pay
ment can not be collected, the tax
payer, after exhausting every reason
able means of collection, may deduct
/ the amount as a bad debt IN his in
come tax return for subsequent
year. The sale of the property is re-
garded as closed transaction and the
collection of the notes as a new item,
DEPRECIATION
| Depreciation sustained on business
property in years prior 10 the sale
must be considered in the computation
| of proat. For example. a taxpayer
1cquired Building in 1915 at a cost
of $4,000 and sold it on January /.
1920. for $4,000 Assuming that 3
per cent is a reasonable annual allow
ance for depreciation, the total allow.
ance since date of acquisition to date
| of sale would be $500. The profit to
! be returned in 1920 would be the diff
ference between the cost, $4,000, less
depreciation sustained, $500, or $500.
and the sales price of $4,000. The
profit of $4,000, so determined. is sub
| ject to tax in 1920. and if the taxpayer
has not claimed deduction for de-
probation in prior years. amended
returns may be fled, including there
in deduction for depreciation of 8