3.1 - Basis & Holding Period Of Assets

Question 1

What is the general basis of property?

Answer 1

The cost of the property to the taxpayer including amount to purchase, prepare and place the property into service

Question 2

What is real property? What is personal property?

Answer 2

Real: land and all items permanently fixed to the land (land and buildings))
Personal: machinery and equipment

Question 3

When does the holding period for purchased property begin?

Answer 3

The date the property is acquired

Question 4

What is reduced from the basis of the property to come to the “adjusted basis of the asset”?

Answer 4

Depreciation

Question 5

Property acquired as a gift is valued at:

Answer 5

NBV

Question 6

Gains and losses from property acquired as a gift is calculated using what basis?

Answer 6

Rollover cost basis

Question 7

What is the exception to the rollover cost basis for gifted property?

Answer 7

If the FMV at the date of the gift is lower than the rollover costs basis from the donor (NBV), the basis for the donee depends on the future selling price of the asset

Question 8

When the taxpayer sells a gifted property for greater than the rollover basis, what is the gain basis?

Answer 8

The gain is the difference between the sale price and the rollover basis

Question 9

When a taxpayer sells the gifted property for less than the FMV at the date of the gift, what is the loss basis?

Answer 9

The FMV

Question 10

When a taxpayer sells the gifted property for a price less than the donor’s rollover cost but more than the FMV at the date of the gift, what is the gain/loss basis?

Answer 10

No gain or loss recognized, the basis is the “middle” selling price

Question 11

What is the basis for depreciation purposes for gifted property?

Answer 11

The lesser of:
The donor’s adjusted basis at the date of the gift
OR
The FMV at the date of the gift

Question 12

A donor gives property worth $3,000 with an adjusted basis of $5,000 to a taxpayer. Determine the basis of the property if:
1. Property is in a gain situation on sale
2. Property is in a loss situation on sale
3. Property is in a zero gain/loss on sale
4. Basis for calculating depreciation prior to sale.

Answer 12

1. $3,000
2. $5,000
3. Anywhere between $3,001 - $4,999
4. $3,000

Question 13

For gifted property, if the FMV at the time of the gift is used as the basis of the gift, what date does the holding period start?

Answer 13

Started as of the date of the gift

Question 14

What basis does property that’s been inherited or bequested take?

Answer 14

The step-up or step-down to the FMV at the date of the descendants death

Question 15

If the executor selected the alternate valuation date for inherited property, the FMV on the alternate valuation date will be:

Answer 15

Th earlier of 6 months after death/distribution
OR
The date of distribution/death

Question 16

What is the holding period for inherited property?

Answer 16

It is automatically considered to be long-term property regardless of how long it has actually been held

Question 17

Taxpayer inherited property from a descendent. The FMV at the date of death was $20,000. The property was worth $15,000 6 months later and was worth $22,000 when it was distributed to the taxpayer 8 months later. It has a cost basis of $5,000 to the deceased.

What is the basis of inherited property to the taxpayer if the alternate valuation date was not elected? If it was elected?

Assuming the alternate valuation date was not elected compute the capital gain if sold for $25,000? What if alternate valuation date not elected?

Answer 17

Was not elected: 20,000 ; gain = 5,000
Was elected: 15,000 ; gain = 10,000

Question 18

What is the general rule for capital expenditures?

Answer 18

The cost of all tangible and intangible property with a useful life of more than 1 year must be capitalized

Question 19

What are some exceptions to the capital expenditures rule?

Answer 19

Repairs and maintenance is expensed
Improvements are capitalized
Materials and supplies are exensed

Question 20

Businesses that have a policy to immediately expense low-costing personal property items are allowed to immediately expense (deduct) up to a certain amount of those costs for income tax purposes under what rule?

Answer 20

The De Minimis Safe Harbor provision

Question 21

What amount is the taxpayer allowed to deduct under the de minimis safe harbor provision if they have applicable financial statements? What if they do not have applicable financial statements?

Answer 21

If have AFS: can deduct up to $5,000 per item
If don’t have AFS: can deduct up to $2,500 per item

If over these amounts, must capitalize the entire cost of item

Question 22

A corporation has an applicable financial statement and at the beginning of year 1 has a written accounting policy to expense amounts paid for tangible personal property costing up to $10,000. During year 1, the corporation pays $50,000 for 8 desks. Determine the amount expenses and/or capitalized for the desks for federal tax purposes.

Answer 22

50,000 / 8 desks = $6,250 per desk
$6,250 > $5,000; therefore all $50,000 must be capitalized

Question 23

In June year 9, hall’s mother gifted her 100 shares of listed stock. The donor’s basis for this stock, which she bought in year 1, was $4,000 and market value on the date of the gift was $3,000. Hall sold its stock in July year 9 for $3,500. The donor paid no gift tax. What was hall’s reportable gain or loss in year 9 on the sale of the 100 shares of stock gifted to her?

Answer 23

5,000 NBV Basis
3,500 Sale
3,000 FMV

Since the sale is between the FMV and NBV basis, the gain/loss is $0.