9. Property Transactions: Basis & Dispositions Flashcards
What is cost basis?
The sum of capitalized acquisition costs.
Substituted basis is computed by
Reference to basis in other property
How is transferred basis computed?
Transferred basis is computed by reference to basis in the same property in the hands of another.
How is exchanged basis computed?
Exchanged basis is computed by reference to basis in other property previously held by the person.
What is converted basis?
Converted basis is when personal-use property is converted to business use.
*The basis of the property is the lower of its basis or the FMV on the date of conversion.
What costs are included in the initial basis of purchased property?
Initial basis in purchased property is the cost of acquiring it. Only capital costs are included, i.e., those for acquisition, title acquisition, and major improvements.
Are the costs of maintaining and operating property added to basis?
No, they are expensed.
Are the costs for the construction of real or tangible personal property to be used in a trade or business capitalized?
Yes. All costs necessary to prepare the property for its intended use are capitalized, including both direct and most allocable indirect costs, e.g., for permits, materials, equipment rent, compensation for services (minus any work opportunity credit), and architect fees.
Are the costs for the construction of real or tangible personal property to be used in a trade or business capitalized?
Yes. All costs necessary to prepare the property for its intended use are capitalized, including both direct and most allocable indirect costs, e.g., for permits, materials, equipment rent, compensation for services (minus any work opportunity credit), and architect fees.
How is cost basis determined?
Cost basis includes the FMV of property given up. If this amount is not determinable with reasonable certainty, the cost basis is the FMV of property received.
Is a rebate to the purchaser included in cost basis?
No, a rebate to the purchaser is treated as a reduction of the purchase price. It is not included in basis or in gross income.
How do liabilities to which the acquired property is subject affect the basis of that property?
Acquisition basis is increased for liabilities to which the acquired property is subject.
The FMV of property received in exchange for services is treated as what to the provider of those services?
The FMV of property received in exchange for services is income (compensation) to the provider when it is not subject to a substantial risk of forfeiture and not restricted as to transfer.
What is the tax cost basis of property received in exchange for services?
The property acquired has a tax cost basis equal to the FMV of the property.
To what extent is the sale of restricted stock to an employee treated as gross income (bonus compensation)?
Sale of restricted stock to an employee is treated as gross income (bonus compensation) to the extent any price paid is less than the stock’s FMV.
When more than one asset is purchased for a lump sum, how is the basis of each asset computed?
When more than one asset is purchased for a lump sum, the basis of each is computed by apportioning the total cost based on the relative FMV of each asset.
What is a donee’s basis in property acquired by gift if the FMV on the date of the gift is more than the donor’s basis?
The donee’s basis in property acquired by gift is the donor’s basis, increased for any gift tax paid attributable to appreciation.
Are the costs and losses associated with demolishing a structure allocated to the land or to the structure?
Costs and losses associated with demolishing a structure are allocated to the land. The costs include the remaining basis (not FMV) of the structure and demolition costs.
What is the amount of 2022 annual exclusion for gift tax?
The 2022 annual exclusion for gift tax is $16,000.
If the FMV on the date of a gift is less than the donor’s basis, the donee has a dual basis for the property. What basis is used if the property is later transferred at a loss?
The FMV on the date of the gift is used if the property is later transferred at a loss.
If the FMV on the date of a gift is less than the donor’s basis, the donee has a dual basis for the property. What basis is used if the property is later transferred at a gain?
The donor’s basis is used if the property is later transferred at a gain.
If the FMV on the date of a gift is less than the donor’s basis, the donee has a dual basis for the property. What amount of gain or loss is recognized if the property is later transferred for more than the FMV but less than the donor’s basis on the date of the gift?
No gain or loss is recognized.
If gift property is later converted from personal to business use, what is the adjusted basis of the property on the date of conversion?
The adjusted basis is the lower of the transferor’s adjusted basis or the FMV on the date of conversion.
If property is received for services, what amount is included in gross income?
Gross income is the fair market value of the property received minus any cash or other property given.