Basis and Holding Period of Assets Flashcards
How is basis in property calculated?
Cost to acquire the property plus any additional costs to prepare it for use/place it in service (it is reduced for depreciation)
What is the difference between real and personal property?
Real = land and things permanently affixed to it (buildings, paving, etc.)
Personal = everything else
Basis for gifted property
Retains the costs basis it had in the hands of the donor at the time of the gift
Exception: if the FMV is lower than the donor’s basis at the time of the gift, then the basis for the recipient will determine how much they sell the property for in the future
sales price > donor’s rollover basis = gain
sales price < donor’s rollover basis = loss
sales price in between donor’s rollover basis = no gain/loss (basis = selling price)
Holding period for gifted property
The recipient normally assumes the donor’s holding period unless the FMV is less than the donor’s rollover basis. In which case, the holding period starts as the date of the gift
Basis for inherited property
Takes the FMV at the date of the decedent’s death
Holding period for inherited property
Automatically considered to be long-term regardless of how long it has been held
Alternate Valuation Date
The basis of the asset is the FMV at the earlier of: distribution/sale date of asset or 6 months after death
Difference between repairs/maintenance and improvements
repairs/maintenance: get expensed immediately
improvements: get capitalized
What is De Minimis Safe Harbor Provision?
Relates to expensing low-cost personal property items. The amount a taxpayer is allowed to deduct for each item depends on whether the taxpayer has an applicable financial statement (AFS aka audited financial statement). If the item is more than the allowable amount, it must be capitalized
AFS = up to $5,000/item
No AFS = $2,500/item
