The New York herald., 1921-12-18
EXPLAINS INCOME
TAX TO REALTORS
Brooklyn Board Helps Owners
Straighten Out Tangles in
~ Federal Statute.

prepared a pamphlet containing syn
opsiT OF the Federal income tax law
NyhJrf explains the application OF the
tax 70 real estate owners and holding
companies The synopsis was prepared
for the board by John w. Feely, an in.
come tax specialist. Those paragraphs
whicf apply TO the realty phases Of the
tax application are as follows:
10. Corporations, Carrying Charges
on Property-Where O corporation en-
gagedin buying and selling real estate
purchases a piece OF property and holds
ID for profit, the interest. taxes and
ordinary repairs incident 10 the prop
erty represent charges for the year in
which paid or are so charged upon the
books. as to represent liabilities OF the
corporation and are allowable deduc-
ticns in computing net income even
though in excess OF the gross income
derived from the property. Such
charges are not capital expenditures If
the corporation has any income from
which to deduct them, and they should
not@be added TO the cost of the prop
erty in determining the amount Of gain
or loss arising from its sale except 10
she extent that the corporation has no
gross income from any source against
which to deduct such expenditures for
the taxable year in which they were
made.
II. Corporations, Eeplacements -
Amounts expended for requirements
cannot be claimed as business expenses
such items are held to be- investments
of capital.
1e Property Acquired Prior to March,
a.. -1Af
from the sale Of property acquired prior
20 March !, 1918, its cost or market
value as of March I, 1913 (vTlichever
is greater), should be used in ascertain
ing the profits subject to taxation. Ii
IL loss is incurred, the cost or market
value as OF March /, 1913 (whichever
is lower), should bo used as the basis
for determining tho loss Ii property
is s5t1 at a price which is between what
It cost prior TO March !. 1913, and Its
valssss-as OF March I, 1918. there is
neither a taxable gain nor q loss. In tie
case OF real estate the market value
may -be determined by q certificate evil
dencing It's assessed value on March l.
1913s A bona fide offer to purchase the
property on or before March /, 1913, or
rn appraisal by reliable appraiser VIII
DE considered good evidence.
rs, Exchange OF Property - Where
there Is an exchange OF property. real
personal or mixed. for any other such
property, no gain or loss shall be recog-
nized unless the property received III
exchange has readily realizable market
value; but even if the property received
in ex3hange has a readily reaiizable'
market value, no gain or loss shall be
recognized (1) When any such property
held for investment, or for productive
use In trade or business mot including
stock in trade or other property held
primarily for sale), is exchanged for
property OF a like kind or use (: CD When
in the reorganization of one or more
corporations q person receives in place
of any stock or securities owned by him
stock or securities in a corporation
Darcy~to or resulting from such re-
organization. The word reorganization
as used in this paragraph includes a
merger or consolidation (including the
acquisition by one corporation OF al
least majority OF the voting stock and
1t least a majority OF the total number
OF shares oc all other classes of stock
of another corporation, or OF substanti-
ally-nf the properties of another cor
poration). recapitalization, or mere ex-
change in identity, form or place o.
Organization of n corporation; or CD
When (A) a person transfers any prop
crty. real, personal or mixed, to n cor
poration and Immediately after the
transfer Is In control of such corpora.
tion, or (B) two or more persons trans
fer amy such property to a corporation
and immediately after the transfer are
in control of such corporation, and the
amounts of stock, securities. or both
received by such persons are In substan-
tally the same proportion as their In
terosts In the property before such trans
Ter. A person is or two or more persons
are. .'ln control" of a corporation when
N 49,
ing stock and at least so per cent. OF the
total number OF shares of all other
classes Of stock of the corporation.
H. When property is exchanged for
other property and no gain or loss is
recognised under the provisions of the
preceding paragraph. the property re-
ceived shall, for the purposes of this
section. be treated as taking the place
OF the property exchanged therefor, ex-
cept as provided in the next succeeding
paragraph.
iS--Where property Is exchar ged for
other property which has no readily re-
alizable market value. together with
money or other property which has
readily realizable market value, then
the money or the fair market value OF
the property having such readily real
izahlo market value received in ex-
change shall he applied against and re.
duce the basis provided i'm this section
Of the property exchanged. ard IL Ia
excess of such basis shall be taxable To
the extent of tho excess. But when
property Is exchanged for property
specified In paragraph is, as received
in exchange. together with money or
other property of readily reallzable
market valve other than that specified
IN such paragraph, the money or tho
fair market value of such other prop
erty received in exchange shall DO APP
piled against and reduce the basis. pro-
videg in this section, of tho property
exchanged. and II in excess Of such
basis shall be taxable to the extent of
the excess.
i9--Nothing in this section paragraphs
1G, IL and 1S) shall be construed to pre-
vent Gin the case of property sold under
contract providing for payment IN in
stallmentsl the taxation OF tina; portion
Of any installment representing gain or
profit In the year IN which such pay
ment is received.
9e-Contract to Sell Real Estate--No
realization of gain or loss arises from
~ mere contract TO cell real estate in the
future. Tho sale Is hold 60 occur at
thes time the deed passes.
cS-lseneral--An individual who is the
enf.. apt % xsl,fnl, "a