California Code of Regulations › Title 18 - Public Revenues › Division 3 - Franchise Tax Board › Chapter 3.5 - Bank and Corporation Tax › Subchapter 6 - Gross Income › Article 1 - Definitions › Section 24271(d) - * Gains Derived from Dealings in Property

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(1) In General. Gain realized on the sale or
					 exchange of property is included in gross income, unless excluded by law. For
					 this purpose property includes tangible items, such as a building, and
					 intangible items, such as goodwill. Generally, the gain is the excess of the
					 amount realized over the unrecovered cost or other basis for the property sold
					 or exchanged. The specific rules for computing the amount of gain or loss are
					 contained in Section
					 24901 and the regulations
					 thereunder. When a part of a larger property is sold, the cost or other basis
					 of the entire property shall be equitably apportioned among the several parts,
					 and the gain realized or loss sustained on the part of the entire property sold
					 is the difference between the selling price and the cost or other basis
					 allocated to such part. The sale of each part is treated as a separate
					 transaction and gain or loss shall be computed separately on each part. Thus,
					 gain or loss shall be determined at the time of sale of each part and not
					 deferred until the entire property has been disposed of. This rule may be
					 illustrated by the following examples
EXAMPLE (1).
Corporation A acquires a 10-acre tract for $10,000, which
						it divides into 20 lots. The $10,000 cost must be equitably apportioned among
						the lots so that on the sale of each, Corporation A can determine its taxable
						gain or deductible loss.
EXAMPLE (2).
Corporation B purchases for $25,000 property consisting
						of a used car lot and adjoining filling station. At the time, the fair market
						value of the filling station is $15,000 and the fair market value of the used
						car lot is $10,000. Five years later Corporation B sells the filling station
						for $20,000 at a time when $2,000 has been properly allowed as a depreciation
						thereon. Corporation B's gain on this sale is $7,000, since $7,000 is the
						amount by which the selling price of the filling station exceeds the portion of
						the cost equitably allocable to the filling station at the time of purchase
						reduced by the depreciation properly allowed.
(2) Nontaxable Exchanges. Certain realized
					 gains or losses on the sale or exchange of property are not "recognized," that
					 is, are not included in or deducted from gross income at the time the
					 transaction occurs. Gain or loss from such sales or exchanges is generally
					 recognized at some later time. Examples of such sales or exchanges are the
					 following:
(A) Certain formations,
					 reorganizations, and liquidations of corporations, see Sections
					 24501,
					 24503,
					 24512,
					 24513,
					 24514,
					 24521,
					 24531,
					 24532,
					 24533, and
					 24551.
(B) Exchange of certain property held for
					 productive use or investment for property of like kind, see Section
					 24941;
(C) Certain involuntary conversions of
					 property, if replaced, see Sections
					 24943 through
					 24949.2;
(D) Certain exchanges of insurance policies
					 and annuity contracts, see Section
					 24950; and
(E) Certain exchanges of stock for stock in
					 the same corporation, see Section
					 24951.
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* Except for provisions relating to capital assets, this
						regulation is substantially the same as Section
						26 CFR
						1.61-6.