61 Pa. Code § 103.13 - Net gains or income from disposition of property
(a)
Gain or loss. A gain on
the disposition of property is recognized in the taxable year in which the
amount realized from the conversion of the property into cash or other property
exceeds the adjusted basis of the property. A loss is recognized only with
respect to transactions entered into for gain, profit or income and only in the
taxable year in which the transaction, in respect to which loss is claimed, is
closed and completed by an identifiable event which fixes the amount of the
loss so there is no possibility of eventual recoupment.
(b)
Stock dispositions.
Corporate reorganizations, acquisitions and recapitalizations shall be a sale,
exchange or disposition resulting in a taxable gain or loss to the shareholders
whether or not the gain or loss is recognized for purposes of the Federal
income tax, except as provided in the TRC. The transfer of property or anything
else of value to a corporation in exchange for an interest therein is a sale,
exchange or disposition resulting in a taxable gain or loss. A resident
shareholder shall report as taxable gain in the taxable year in which it was
received or credited the excess of the fair market value of any "return of
capital" distribution over the adjusted basis of his stock. A "return of
capital" distribution is a distribution which is not made or credited by a
business corporation or association out of its earnings and profits. The basis
of stock or shares held by a resident shareholder shall be decreased, but not
below zero, by a distribution which is not taxable dividend income.
Example. B Corporation distributed from its capital account $100,000 to its sole stockholder, S, a resident of Pennsylvania. The adjusted basis of S's stock was $75,000. As the distribution is not made out of earnings and profits, the $100,000 does not represent taxable dividend income to S. S must, however, decrease the adjusted basis of the stock from $75,000 to zero and report the remaining $25,000 of the $100,000 "return of capital" distribution as a taxable gain.
(c)
Basis. If property is
acquired by a taxpayer by inheritance, the basis shall be the fair market value
at the date of death. If property is acquired by a taxpayer by gift, the basis
shall be the same as it would be if the property had remained in the hands of
the donor. Otherwise, the basis shall be the cost.
(d)
Sales made before June 1,
1971. Payments received pursuant to an installment sale made before
June 1, 1971, are not subject to tax except as to separately stated interest
payments.
(e)
Gain or loss
on property acquired on or after June 1, 1971. The amount subject to
tax shall be the net gains or net income less net losses derived from the sale,
exchange or other disposition of property-real or personal, tangible or
intangible-to the extent that the value of that which is received or receivable
is greater than or, in the case of a loss, less than the basis of the taxpayer.
The basis shall be increased by capital expenditures made after the property
was acquired and decreased by depreciation or amortization, allowed or
allowable, after the property was acquired.
(f)
Gain or loss on property acquired
prior to June 1, 1971. If the property was acquired prior to June 1,
1971, the amount subject to tax shall be the net gains or net income less net
losses derived from the sale, exchange or other disposition of property-real or
personal, tangible or intangible-to the extent that the value of that which is
received or receivable is greater than or, in the case of a loss, less than the
basis of the taxpayer determined as follows:
(1) The basis as of June 1, 1971, for
determining gain shall be the cost or other basis as adjusted or its fair
market value as of June 1, 1971, whichever is greater.
(2) The basis as of June 1, 1971, for
determining loss shall be the cost or other basis as adjusted without reference
to the fair market value as of June 1, 1971.
(3) The application of paragraphs (1) and (2)
may be illustrated by the following example:
(i) On June 1, 1966, a taxpayer purchased for
$50,000 property having a useful life of 50 years. Assuming that there were no
capital improvements to the property before June 1, 1971, the depreciation
allowed or allowable on the property before June 1, 1971, was $5,000 (5 years
at $1,000), so that the original cost adjusted, as of June 1, 1971, for
depreciation allowed or allowable prior to that date is $45,000. On that date
the property had an appraised fair market value of $90,000 with a remaining
life of 45 years. The property was sold on June 1, 1980, for
$120,000.
(ii) For the purpose of
determining gain from the sale, exchange or other disposition of the property
on June 1, 1980, the basis of the property is the fair market value of $90,000
as of June 1, 1971, adjusted for depreciation allowed or allowable after May
31, 1971, computed on $90,000. Thus, the basis of $90,000 is reduced by the
depreciation adjustment from June 1, 1971, to May 31, 1980, in the aggregate of
$18,000 (9 years at $2,000-$90,000 ÷ 45), leaving an adjusted basis for
determining gain of $72,000 ($90,000 less $18,000). Taxpayer would be subject
to tax on a gain of $48,000 ($120,000 less $72,000).
(iii) Assume the same facts as in
subparagraph (i) except that the taxpayer purchased the property for $90,000 on
June 1, 1966, and the property had a fair market value of $30,000 on June 1,
1971. The depreciation allowed or allowable on the property before June 1,
1971, was $9,000 (5 years at $1,800) so that the original cost adjusted, as of
June 1, 1971, for depreciation allowed or allowable prior to that date is
$81,000. For the purpose of determining gain the basis of the property is its
cost of $90,000 reduced by the depreciation adjustment allowed or allowable in
the aggregate of $25,200 (14 years at $1,800-$90,000 ÷ 50), leaving an
adjusted basis for determining gain of $64,800 ($90,000 less $25,200). Taxpayer
would be subject to tax on a gain of $55,200 ($120,000 less $64,800).
(iv) Assume the same facts as in subparagraph
(i) except that the property was sold on June 1, 1980, for $20,000. For the
purpose of determining loss from the sale, exchange or other disposition of the
property on June 1, 1980, the basis of the property is its cost, adjusted for
depreciation allowed or allowable. In this example, the amount of depreciation
allowed or allowable is $15,000 (15 years at $1,000). Therefore the adjusted
basis for determining loss on June 1, 1980, is $35,000 ($50,000-$15,000). The
taxpayer would report a loss of $15,000.
(4) If the selling price is greater than cost
but less than the June 1, 1971, value, there is neither taxable gain nor loss.
The application of this paragraph may be illustrated by the following example:
Example: Assume that acquisition cost is $10,000, June 1, 1971, value is $30,000 and the selling price is $20,000. If the rules in paragraph (1) for determining the basis for gain were applied, the result would be a loss-($30,000 less $20,000). If the rule in paragraph (2) for determining the basis for loss were applied, the result would be a gain-($20,000 less $10,000). However, the rule in this paragraph provides that there is neither taxable gain nor loss.
(5) Determination of fair market value as of
June 1, 1971, shall be as follows:
(i) If the
property on which a taxpayer is reporting was not listed on an established
market or exchange, the fair market value as of June 1, 1971, shall be the
opening price on Tuesday, June 1, 1971. If the property was not traded on that
day, the price of the last sale during the preceding week shall be the fair
market value as of June 1, 1971, for computing gain or loss. If the property
was not traded during the previous week or in the absence of an opening price
for Tuesday, June 1, 1971, the average of the high and low price or the average
of the bid and asked quotations on Tuesday, June 1, 1971, whichever is
appropriate, shall be used to ascertain the fair market value as of June 1,
1971. When a return is filed involving property acquired prior to June 1, 1971,
an explanation of the method utilized in computing the June 1, 1971, fair
market value shall be attached to Schedule D.
(ii) If the property on which a taxpayer is
reporting was not actively traded in an established market or exchange, the
fair market value as of June 1, 1971, may be established through a bona fide,
independent, written appraisal as of the date by a competent appraiser of
recognized standing and ability. The value as established by the appraiser
shall specifically exclude the value of improvements made subsequent to June 1,
1971. A copy of the appraisal shall be attached to Form PA-40 when filed. When
an appraisal is utilized, an explanation of improvements made subsequent to
June 1, 1971, including the date and cost of the improvements, shall be
attached to Schedule D.
(iii) The
following table illustrates the application of the rules for computing gain or
loss as enumerated in this subsection. It may be used as a guide when
securities or other nondepreciable assets are involved, assuming that no
adjustments are necessary for capital additions or capital reductions.
| Cost | June 1,1971 Value | Selling Price | Gain | Loss |
| 500 | 750 | 1,000 | 250 | - |
| 500 | 250 | 1,000 | 500 | - |
| 500 | 1,500 | 1,000 | none | none |
| 500 | 100 | 50 | - | 450 |
| 500 | 25 | 50 | - | 450 |
| 500 | 1,000 | 50 | - | 450 |
(6) If the fair market value of the property
was not ascertained as of June 1, 1971, by the methods enumerated in paragraph
(5), the gain or loss shall be computed by subtracting from the sales price
selling expenses and the historic or cost basis of the property and multiplying
that figure by a fraction-the numerator of which is the number of full calendar
months the property was held subsequent to June 1, 1971, and the denominator of
which is the number of full calendar months in the taxpayer's entire holding
period for the property. When the proration is used, an explanation shall
accompany Schedule D, setting forth for each asset the date and costs of
acquisition and the date and costs of any capital improvements, both prior to
and subsequent to June 1, 1971. Proration fractions utilized shall be included
in the explanation. Paragraphs (1)-(5) do not apply when this paragraph is
used.
(i) The application of this paragraph
may be illustrated by the following examples:
(A) Taxpayer purchased his home on June 1,
1960, at a cost of $20,000. He sold the home on June 1, 1980, for $100,000. He
incurred selling expense of $5,000. The taxable gain is computed by subtracting
from the sale price of $100,000 selling expenses of $5,000, leaving a net sale
price of $95,000. Next the $20,000 cost basis is subtracted from the net sale
price of $95,000. This $75,000 gain is multiplied by the fraction of 108/240
resulting in a taxable gain of $33,750.
(B) A tract of land is acquired on June 1,
1960, at a cost of $10,000. As of June 1, 1965, a building at a cost of $50,000
is constructed on the land. The building has a useful life of 50 years and is
depreciated using the straight line method. On June 1, 1980, the asset is sold
for $100,000. Assuming the value of the land was $25,000 and the value of the
building was $75,000 at the time of sale, the following would be the method for
determining the net gain for Pennsylvania tax purposes, utilizing the proration
method. Since the land was held for a period of 20 years, 9 of which were
subsequent to June 1, 1971, the applicable fraction would be 108/240 times the
net gain of $15,000. Since the structure was held for 15 years, of which 9 were
subsequent to June 1, 1971, the applicable fraction would be 108/180 times the
net gain of $40,000 ($50,000 cost less $15,000 depreciation equals $35,000
adjusted basis; $75,000 sale price less $35,000 adjusted basis equals $40,000
gain). Thus, the total taxable gain for this transaction would be $30,750
($6,750 + $24,000).
(ii)
For the Department to determine the proper proration fraction applicable, data
similar to that outlined in subparagraph (i) shall be provided.
(g)
Exclusion of
gain from sale of principal residence before January 1, 1998.
(1)
Eligible individuals. In
determining whether an individual is eligible to claim the exclusion of gain
from the sale of a principal residence, the individual shall comply with the
following:
(i) Subject to the limitations of
paragraph (2), and except as provided in subparagraph (iii), paragraph (3) or
paragraph (5), a taxpayer may elect to exclude the taxpayer's portion of the
aggregate gain realized on the sale of a residence only under the following
conditions:
(A) The taxpayer is at least 55
years of age on the date of sale.
(B) The taxpayer used the residence as his
principal residence for periods aggregating 3 years or more, during the 5-year
period ending on the date of sale.
(C) The taxpayer owned the residence for
periods aggregating 3 years or more, during the 5-year period ending on the
date of sale.
(D) The date of sale
of the residence is after June 30, 1987, and before January 1, 1998.
(E) The taxpayer has not previously made an
election under this subparagraph for Pennsylvania tax purposes or has revoked
previous elections.
(ii)
When a taxpayer holds title to a residence with a spouse or other person as
joint tenants, tenants in common or tenants by the entireties, it is not
necessary that each co-owner make an election or that a co-owner consent to the
election of another co-owner. Except as provided in subparagraph (iii) or
paragraph (3), the age, ownership and use conditions in subparagraph (i) apply
separately to each co-owner and only the co-owner who meets age, ownership and
use conditions may make an election. A taxpayer is not precluded from making
the election merely because the taxpayer or a spouse has already made the
Federal election.
(iii) When a
joint return of income is made with respect to the sale of a married couple's
jointly owned residence, it is not necessary that both spouses satisfy the age,
ownership and use conditions of subparagraph (i). If one spouse satisfies the
three conditions, both spouses shall be considered to satisfy requirements. If
separate returns of income are made, the general rule that the age, ownership
and use conditions apply separately to each spouse is applicable and only the
spouse who meets age, ownership and use conditions may make an
election.
(2)
Dollar limitations. Dollar limitations for the exclusion are
as follows:
(i) If the residence sold was
owned solely by the taxpayer, the amount of gain excluded by the taxpayer under
the election cannot exceed the first $100,000 of taxable gain realized by the
taxpayer on the sale.
(ii) The
aggregate amount of gain excluded on a sale cannot exceed $100,000, regardless
of the number of owners. If the residence sold is owned by more than one owner,
the amount of gain excluded by an owner cannot exceed that owner's pro rata
part of $100,000 determined by multiplying the owner's fractional ownership
interest in the residence sold by $100,000.
Example 1. H and W, a married couple, each owned a one-half interest in their residence. As H and W each owned a one-half interest, the amount of gain excluded by H cannot exceed the first $50,000 of taxable gain realized by H and the amount of gain excluded by W cannot exceed the first $50,000 of taxable gain realized by W.
Example 2. H and W, a married couple, jointly own a one-half interest in their residence. The remaining one-half interest is owned by S. As H and W own one-half interest, the amount of gain excluded by H, W and S cannot exceed the first $25,000, $25,000 and $50,000 of taxable gain realized by H, W and S, respectively, on the sale.
(3)
Unmarried
widow or widower. If a decedent, during the 5-year period ending on
the date of sale, satisfied both ownership and use requirements with respect to
the property sold, the surviving spouse is also treated as satisfying ownership
and use requirements if not remarried.
Example. After H's death, W, the widow of H, sold H's residence. W qualifies for the election, even if W personally does not satisfy ownership and use requirements, if the following apply:
H owned the residence for periods aggregating 3-years or more during the 5-year period ending on the date of sale.
H used the residence as his principal residence for periods aggregating 3-years or more during the 5-year period ending on the date of sale.
W is at least 55 years of age on the date of sale.
W has not previously made an election under this provision for Pennsylvania tax purposes or has revoked all previous elections.
W has not remarried. The date of sale is after June 30, 1987.
(4)
Tenant-stockholders in cooperative housing corporations. An
individual who holds stock as a tenant-stockholder in a cooperative housing
corporation may be eligible to make an election with respect to the sale of the
stock. To determine whether a taxpayer meets requirements, the usual ownership
conditions are applied to the holding of the stock and the usual use conditions
are applied to the house or apartment which the taxpayer is entitled to occupy
because of the taxpayer's stock ownership.
(5)
Estate as taxpayer. A
sale made by an estate will not qualify for the election, unless the sale is
pursuant to an executory contract made prior to death by an individual meeting
the age, ownership and use requirements. The election shall be made on the
decedent's final return.
(6)
Principal residence and use and ownership requirements.
(i) A residence is a house, lodging or place
of habitation, including a trailer or condominium, which is physically occupied
and used for residential purposes. A residence which is a principal residence
for Federal income tax purposes shall be presumed to be a principal residence
for State purposes. In determining whether a residence has been occupied and
used for residential purposes, a taxpayer need not consider temporary absences
from the principal residence if the residence was not rented during the
taxpayer's absence. A temporary absence is an absence of less than 90
consecutive days or an absence of any length when the taxpayer is convalescing
in a hospital, nursing home or a personal care facility.
(ii) The ownership and use tests need not be
met simultaneously. Both tests shall be met during the 5-year period preceding
the date of the sale. For example, a lessee could rent a residence for 2 years,
then purchase the residence and live in it for only 1 of the 3 following years
and still qualify for the election.
(7)
Sale and date of sale.
(i) For purposes of this subsection, the word
"sale" means a sale, exchange, taking by eminent domain, destruction or other
disposition of property giving rise to taxable gain. The date of sale of a
principal residence is the date on which the deed is accepted by the buyer and
title passes-ordinarily, the date of settlement-or, if delivery of the deed is
postponed, the date on which possession and the burdens and benefits of
beneficial ownership pass from the seller to the buyer under the contract of
sale.
(ii) The date a taxpayer
received condemnation proceeds giving rise to taxable gain will be considered
the date of sale in the case of a condemnation. In the case of the destruction
of a residence, the date the taxpayer receives casualty insurance proceeds or
damages giving rise to taxable gain will be considered the date of
sale.
(8)
Farms,
duplexes and other mixed use property. If the property sold includes
business or rental property or the land surrounding the residence is in excess
of that which is reasonably necessary for the use of the dwelling as a home,
special rules apply:
(i) Where the land
surrounding the residence is in excess of that which is reasonably necessary
for the use of the dwelling as a home, only the portion of the gain on the sale
of the property allocable to the portion used as a residence is subject to the
exclusion. Real estate used for commercial farming or for another commercial
purpose is not reasonably necessary for the use of the dwelling as a
home.
(ii) If a residence includes
business or rental premises, only that portion of gain on the sale of the
property allocable to the portion used as a residence is subject to the
exclusion. Examples include a sole proprietor's residence above the sole
proprietor's store, an office in home and a duplex where one unit is
rented.
(9)
Election. The once-in-a-lifetime elective gain exclusion shall
be filed with the PA-40 tax return on a form provided by the
Department.
(10)
Revocation
of election. To revoke an election, the taxpayer shall have completed
and filed Form PA-19R, "Revocation of Election," and paid the tax and interest
due within 3 years of the date the original return was required to be filed,
determined with regard to extensions. Each party to an election on a joint
return shall consent to its revocation. If one of the spouses to an election on
a joint return is deceased, one of the spouse's personal representative or
surviving spouse may consent to the revocation.
(h) Exclusion of all gain from disposition of
principal residence after December 31, 1997.
(1)
Eligible individuals. An
individual may exclude from tax gain realized on the sale or other disposition
of the taxpayer's principal residence if all of the following conditions are
met:
(i) The date of disposition of the
residence is after December 31, 1997.
(ii) The taxpayer used the residence as his
principal residence for periods aggregating 2 years or more during the 5-year
period ending on the date of its disposition.
(iii) The taxpayer owned the residence for
periods aggregating 2 years or more during the 5-year period ending on the date
of its disposition.
(iv) One of the
following applies:
(A) During the 2-year
period ending on the date of disposition of the taxpayer's principal residence,
there was no prior disposition by the taxpayer of a principal
residence.
(B) The disposition of
the taxpayer's principal residence is by reason of an unforeseen change in
employment or health or severe financial hardship to the taxpayer resulting
from a sudden and unexpected accident, loss of property due to casualty or
other similar extraordinary and unforeseeable circumstance arising as a result
of events beyond the control of the taxpayer.
(2)
Market exigencies. For
purposes of paragraph (1)(iv), it shall be immaterial that a prior disposition
was delayed due to market exigencies or other reason.
(3)
Ownership and use
conditons. For purposes of paragraph (1):
(i)
Exception. Except as
provided in subparagraph (ii), when a taxpayer holds title to a residence with
a spouse or other person as joint tenants, tenants in common or tenants by the
entireties, the ownership and use conditions in paragraph (1) apply separately
to each coowner and only the coowner who meets the conditions of paragraph (1)
may claim the exclusion.
(ii)
Joint return. When a joint return of income is made with
respect to the disposition of a married couple's jointly owned residence, it is
not necessary that both spouses satisfy the ownership and use conditions of
paragraph (1). If one spouse satisfies the conditions, both spouses shall be
considered to satisfy the conditions. If separate returns of income are made,
the general rule that the ownership and use conditions apply separately to each
spouse is applicable and only the spouse who meets ownership and use conditions
may make an election.
(iii)
Unmarried widow or widower. If a decedent, during the 5-year
period ending on the date of disposition, satisfied both ownership and use
conditions with respect to the property sold, the surviving spouse is also
treated as satisfying the ownership and use conditions if not
remarried.
(iv)
Tenant-stockholders in cooperative housing corporations. An
individual who holds stock as a tenant-stockholder in a cooperative housing
corporation may qualify for exclusion with respect to the disposition of the
stock. To determine whether a taxpayer meets requirements, the usual ownership
conditions are applied to the holding of the stock and the usual use conditions
are applied to the house or apartment which the taxpayer is entitled to occupy
because of the taxpayer's stock ownership.
(v)
Estate as taxpayer. A
disposition made by an estate will not qualify for the exclusion, unless the
disposition is under an executory contract made prior to death by an individual
meeting the ownership and use conditions.
(vi)
Principal residence; use and
ownership conditions.
(A) A
residence is a house, lodging or place of habitation, including a trailer or
condominium, which:
(I) Has independent or
self-contained cooking, sleeping and sanitation facilities.
(II) Is physically occupied and used for
residential purposes by the taxpayer.
(B) The ownership and use conditions need not
be met simultaneously. Both tests shall be met during the 5-year period
preceding the date of the disposition. For example, a lessee could rent a
residence for 1 year, then purchase the residence and again live in it for only
1 of the 4 following years and could still qualify for the election.
(C) The residence which the taxpayer
physically occupies the most within a time period shall be his principal
residence for the period. When a taxpayer alternates between homes, the home
that he personally occupies the most shall be considered his principal
residence. The test of physical occupancy is not satisfied by merely moving
furniture or other personal belongings into a residence without actually living
there or by the taxpayer's family's physical occupancy.
(D) In determining whether a residence has
been occupied and used for residential purposes, a taxpayer need not consider
temporary absences from the principal residence if the residence was not rented
during the taxpayer's absence. A temporary absence is an absence of less than
90 consecutive days or an absence of any length when the taxpayer is
convalescing in a hospital, nursing home or a personal care facility.
(vii)
Disposition and date
of disposition.
(A) For purposes of
this subsection, the word "disposition" means a sale, exchange, taking by
eminent domain, destruction or other conversion of property into cash or other
property giving rise to taxable gain. The date of disposition by sale of a
principal residence is the date on which the deed is accepted by the buyer and
title passes-ordinarily, the date of settlement-or, if delivery of the deed is
postponed, the date on which possession and the burdens and benefits of
beneficial ownership pass from the seller to the buyer under the contract of
sale.
(B) The date a taxpayer
received condemnation proceeds giving rise to taxable gain will be considered
the date of disposition in the case of a condemnation. In the case of the
destruction of a residence, the date the taxpayer receives casualty insurance
proceeds or damages giving rise to taxable gain will be considered the date of
disposition.
(viii)
Farms, duplexes and other mixed use property. If the property
sold includes business or rental property or the land surrounding the residence
is in excess of that which is reasonably necessary for the use of the dwelling
as a home, special rules apply:
(A) Where the
land surrounding the residence is in excess of that which is reasonably
necessary for the use of the dwelling as a home, only the portion of the gain
on the disposition of the property allocable to the portion used as a residence
is subject to the exclusion. Real estate used for commercial farming or for
another commercial purpose is not reasonably necessary for the use of the
dwelling as a home.
(B) If a
residence includes business or rental premises, only that portion of gain on
the disposition of the property allocable to the portion used as a residence is
subject to the exclusion. Examples include a sole proprietor's residence above
the sole proprietor's store, an office in home and a duplex where one unit is
rented.
(ix)
Depreciable property. If, at any time during the taxpayer's
holding period, any portion of the principal residence sold was ever subject to
the allowance for depreciation, only that part of gain on the disposition of
the principal residence that is allocable to the portion of the principal
residence which has never been subject to the allowance is subject to the
exclusion.
(x)
Split
interests. A taxpayer's disposition of an immediate possessory
interest, remainder interest or other interest in his principal residence shall
qualify for exclusion, if the taxpayer would have qualified had he disposed of
the entire interest in the property.
(i)
Accounting methods.
(1)
Immediately recognized
gain. If gain on disposition of property does not qualify for
installment or cost recovery treatment or if the transaction does qualify but
the seller chooses not to use the installment method of accounting, the excess
of the face amount of the evidence of indebtedness given in exchange for the
property sold or otherwise disposed of together with the value of other
consideration received by the seller over the seller's adjusted basis shall be
recognized as gain in the year of the sale or disposition.
(2)
Installment sales
method. When a seller who is a cash basis taxpayer enters into an
agreement for the sale of tangible personal property or real property under
which agreement at least one payment is to be received in a taxable year
following the year of sale, the seller may irrevocably elect to allocate the
gain upon the transaction in equal proportion to each payment to be received
under the following conditions:
(i) The sale
was made on or after January 1, 1984.
(ii) The object of the transaction is not the
lending of money or the rendition of services.
(iii) The taxpayer has not elected to exclude
gains under subsection (g).
(3)
Cost recovery method.
When a seller who is a cash basis taxpayer enters into an agreement for the
sale of intangible personal property under which agreement at least one payment
is to be received in a taxable year following the year of sale, the seller
shall use the cost recovery method of accounting if the note, contractual
promise or other evidence of that obligation is not assignable.
(4)
Repossessed property.
When property is sold pursuant to a deferred payment contract, and the seller
repossesses the property upon default of the buyer in a subsequent tax year,
the seller shall account for the gain or loss by adjusting his basis in the
property repossessed by the amount of gain previously reported on that
sale.
(j)
Determination of net gain or income. For purpose of
determining net gains or income from the disposition of property, gain or loss
shall be recognized on the sale, exchange or other disposition of obligations
issued by the Commonwealth, a public authority, commission, board or other
agency created by the Commonwealth, a political subdivision of this
Commonwealth or a public authority created by the political subdivision or
exempt from State taxation under the laws of the United States only with
respect to obligations issued on or after February 1, 1994. Regardless of the
obligation's date of issuance, gain or loss shall be recognized on the sale,
exchange or other disposition of obligations issued by this Commonwealth, a
publc authority, commission, board or other agency created by the Commonwealth,
a political subdivision of the Commonwealth or a public authority created by
the political subdivision or exempt from State taxation under the laws of the
United States for one or more of the following purposes:
(1) Computing earnings and profits.
(2) Adjusting basis.
(3) Determining an individual's poverty
income.
(k)
Adjustments to basis.
(1)
For taxable years beginning on or after January 1, 1993, the basis of a debt
instrument in the hands of the holder shall be adjusted upward by the amount of
unstated or imputed interest includible in the income of the holder and shall
be adjusted downward, but not below zero, by the amount of any payment under
the debt instrument other than a payment of stated interest.
(2) The basis of an obligation issued by the
Commonwealth, a public authority, commission, board or other agency created by
the Commonwealth, a political subdivision of this Commonwealth or a public
authority created by the political subdivision or an obligation exempt from tax
under the laws of the United States in the hands of the holder shall be
adjusted upward by the amount of unstated or imputed interest that would have
been includible in income but for its statutory exemption and shall be adjusted
downward, but not below zero, by the amount of any payment under the debt
instrument other than a payment of stated interest.
Notes
The provisions of this § 103.13 amended under section 354 of the Tax Reform Code of 1971 (72 P. S. § 7354).
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