Basis And A Tax Consequences Of The Dispositions Of Property: Property Transactions Gains And Losses Flashcards
The net investment income tax is a 3.8% medicare tax that applies to certain investment income for individuals, estates, interest with income above specific thresholds. What are the thresholds and how does the calculation work?
The tax applies if you modified adjusting gross income (MAGI) exceeds $200,000 per single files, $250,000 for married couples, $125,000 for married individuals filing separately
It includes interest , dividends, capital gains, rental and royalty income, nonqualified annuities, and income from businesses involved in trading financial instruments or commodities
The tax is 3.8% on the lesser of your net investment income or the amount by what your MAGI exceeds the threshold
Qualifying dividend income for individuals may be taxed at favorable long-term capital gains rates if it meets what requirements?
Stock is received from a domestic corporation or a qualified foreign corporation
Must be held for more than 61 days during the 121 day period, beginning 60 days before the ex dividend date
Regular dividends from real estate investment trust will not qualify for a reduced rate, long-term distribution dividends will be taxed at a reduced rate
All or a portion of a distribution from a real estate investment trust (REIT) maybe a qualifying dividend eligible to be taxed at capital gains rates if the aggregate amount of qualified dividends received by the REIT Is less than what?
95% of its gross income
Corporations have a limited option to carry back losses and carry forward…what are the options
Carry back either 3 years or carry forward 5 years
What is the adjusted basis in the properties original bases adjusted to the date of disposition
Cost + Capital additions - capital recoveries = adjusted basis
- capital recoveries are depreciation, casualties, and theft
- additions are improvements made to the property by the taxpayer, not including ordinary repair and maintenance
What is the recovery of capital doctrine?
Allows taxpayers to recover the cost or other original basis of property acquired free from tax
Example the cost or other bases of depreciable property is recovered through annual depreciation deductions
Determination of basis of property received from a sale is determined how?
Generally, the properties cost the amount paid for in cash or other property
What is a bargain purchase?
Is the purchase of an item for less than its fair market value from an employer by an employee?
How are lump sum property purchases handled for cost basis when you sub divide the property?
It is allocated between the properties on the basis of their respective fair market values
How is the basis of a property determined that is received as compensation for services?
Generally includable in the taxpayers gross income at FMV, which becomes the taxpayers basis in the property
A gift indicates no cost to the recipient however, a basis to the gift of property is still signed and depends on what
Date of the gift
Donors adjusted tax basis of the property gifted
Amount of gift tax paid, if any, by the donor
FMV of the property on the date of the gift
What is the formula used to determine a Donee’s basis when the donor has paid gift taxes?
If donor gives loss property to the Donee, what rule applies?
Double basis rule
If the Donee sells the gifted LOSS property at a price between the donors adjusted tax basis and the FMV on the date of the gift what gain or loss is recognized?
No gain or loss is recognized at the time of sale
Property included in the decedents gross estate is based on the relative contribution toward what
His Purchase price of the property
If the surviving tenant contributed the entire purchase price in the property, must the estate of the deceased tenant be required to include the property in the gross estate?
No, not if they did not contribute
Will the surviving tenant receive a step up in basis on the decedents share of the property?
No, but will receive the decedent share of the property by operation of law
The burden to demonstrate that the surviving tenant made some contribution lies with the decedents estate or
The surviving tenant
If joint tenants or spouses, each spouse is assumed to have contributed what to the purchase price of the property
50%
Upon the death of the first spouse joint tenant the surviving spouse can receive a stepped up in basis of what?
What if it is a community property state?
50% of the property which is added to the surviving spouses original 50% basis
Community property state: property receives an adjustment in basis to FMV on both halves of the property
What are alternate valuation date limitations of an estate?
Is an alternate valuation date six months after the date of death, unless the property is disposed of before six months after the date of death in which case the valuation is the disposition value
State tax return must be filed
Both the value of the gross estate and the estate tax liability must be reduced to less than what the primary valuation date would have yielded
If appreciated property is given to a donee, who then dies within one year and bequeaths the previously gifted property back to the donor, what is the basis of the inherited property?
Basis of the inherited property will be the donors adjusted basis at the time of the gift to the deceit. No step up in bases is received.
In a like kind exchange, the newly acquired real property includes the holding period of what?
The formally held property that you gave away
Losses from sales to related parties are disallowed who are considered related parties?
Brothers, sisters, and lineal descendants (related parties stop at and do not include cousins); corporations in which the taxpayer has 50% or greater interest and several other complex relationships
What is a wash sale?
Occurs if the taxpayers sells or exchanges stock or securities for a loss and within 30 days before or after the date of the sale exchanges for a similar securitie
If a wash sale occurs what happens to the basis of the new stock or security
The basis of the new stock or securities will include the unrecovered portion of the basis of the formally held stock or securities
What is an installment sale on a property and how is it treated
Installment sale is any sale of property in which the seller will receive at least one payment after the close of the tax year in which the sale occurs
Allows the taxpayer to spread out the gain as the payments are received
Tax ramifications of installment sales
Gain recaptured under either section 1245 (depreciable personal property used in a trade or business) is tax as ordinary income and is not eligible for installment sale treatment. So how is it treated for tax purposes?
Amounts are fully recognized, taxable as ordinary income in the year of sale
Ordinary income recognized in the year of sale is added to the properties basis and this adjusted basis is determining gross profit in the sale
Treated as the 25% gains tax
Tax ramifications of installment sales
The gross profit percentage is calculated how
Buy subtracting the sellers adjusted tax basis from the total contract price and dividing that figure by the contract price
Tax ramifications of installment sales
The down payment received from an installment sale is partially a capital gain and partially a return of capital how is this calculated?
Portion is based on the amount of cash received in the gross profit percentage calculated
