Basis And A Tax Consequences Of The Dispositions Of Property: Property Transactions Gains And Losses

Question 1

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?

Answer 1

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

Question 2

Qualifying dividend income for individuals may be taxed at favorable long-term capital gains rates if it meets what requirements?

Answer 2

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

Question 3

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?

Answer 3

95% of its gross income

Question 4

Corporations have a limited option to carry back losses and carry forward…what are the options

Answer 4

Carry back either 3 years or carry forward 5 years

Question 5

What is the adjusted basis in the properties original bases adjusted to the date of disposition

Answer 5

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

Question 6

What is the recovery of capital doctrine?

Answer 6

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

Question 7

Determination of basis of property received from a sale is determined how?

Answer 7

Generally, the properties cost the amount paid for in cash or other property

Question 8

What is a bargain purchase?

Answer 8

Is the purchase of an item for less than its fair market value from an employer by an employee?

Question 9

How are lump sum property purchases handled for cost basis when you sub divide the property?

Answer 9

It is allocated between the properties on the basis of their respective fair market values

Question 10

How is the basis of a property determined that is received as compensation for services?

Answer 10

Generally includable in the taxpayers gross income at FMV, which becomes the taxpayers basis in the property

Question 11

A gift indicates no cost to the recipient however, a basis to the gift of property is still signed and depends on what

Answer 11

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

Question 12

What is the formula used to determine a Donee’s basis when the donor has paid gift taxes?

Answer 12

Question 13

If donor gives loss property to the Donee, what rule applies?

Answer 13

Double basis rule

Question 14

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?

Answer 14

No gain or loss is recognized at the time of sale

Question 15

Property included in the decedents gross estate is based on the relative contribution toward what

Answer 15

His Purchase price of the property

Question 16

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?

Answer 16

No, not if they did not contribute

Question 17

Will the surviving tenant receive a step up in basis on the decedents share of the property?

Answer 17

No, but will receive the decedent share of the property by operation of law

Question 18

The burden to demonstrate that the surviving tenant made some contribution lies with the decedents estate or

Answer 18

The surviving tenant

Question 19

If joint tenants or spouses, each spouse is assumed to have contributed what to the purchase price of the property

Answer 19

50%

Question 20

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?

Answer 20

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

Question 21

What are alternate valuation date limitations of an estate?

Answer 21

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

Question 22

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?

Answer 22

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.

Question 23

In a like kind exchange, the newly acquired real property includes the holding period of what?

Answer 23

The formally held property that you gave away

Question 24

Losses from sales to related parties are disallowed who are considered related parties?

Answer 24

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

Question 25

What is a wash sale?

Answer 25

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

Question 26

If a wash sale occurs what happens to the basis of the new stock or security

Answer 26

The basis of the new stock or securities will include the unrecovered portion of the basis of the formally held stock or securities

Question 27

What is an installment sale on a property and how is it treated

Answer 27

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

Question 28

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?

Answer 28

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

Question 29

Tax ramifications of installment sales

The gross profit percentage is calculated how

Answer 29

Buy subtracting the sellers adjusted tax basis from the total contract price and dividing that figure by the contract price

Question 30

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?

Answer 30

Portion is based on the amount of cash received in the gross profit percentage calculated