Basis and Holding Periods of Assets Flashcards
Capital stock inherited from a decedent
gets a basis equal to its fair market value on the date of death (or six months after the date of death if the alternative valuation date is elected)
When a taxpayer receives a stock dividend due to a 2-for-1 stock split
the basis in the original stock must be allocated between the old and the new shares
Capital stock received as a gift
gets carryover basis equal to the basis in the hands of the donor, as long as the fair market value at the date of the gift is greater than the basis
if the carryover basis is more than the fair market value at the date of the gift
Special rules apply
neither a gain nor a loss can be computed on the sale of this stock received as a gift
Stocks, stock rights, and bonds (other than those held for sale by a securities dealer) that became worthless during the tax year
are treated as though they were sold on the last day of the tax year
Involuntary Conversions Basis calculations
Realized Gain = Proceeds - Old Basis
If new building is higher priced than proceeds received - all gains is realized
If not then some of the gain will be recognized
New Basis = New building cost - deferred gain
Total basis in property
includes all cost to get the asset ready for use
Ex. Cash, Mortgage, Title insurance
The basis of property acquired by gift when it is subsequently sold at a loss
is the lesser of (i) the donor’s basis or (ii) value at the time of the gift
Because the land had declined in value while held by Jim, no gift tax is added to the basis
A loss from the sale or exchange of property, directly or indirectly, between related parties
is disallowed
Basis in property received as a gift
is generally the same as the basis in the property in the hands of the donor
If gift taxes are paid, they are added to the basis
when the alternate valuation date is elected on inherited property
the basis is the fair market value at that alternate valuation date as long as the valuation is lower than the value at death
In a like-kind exchange
the basis of property received is the basis of the property given up plus any gain recognized, plus boot (cash or property not of a like kind) paid, less any loss recognized, less boot received
If the alternate value is chosen and the property is disposed of before the 6-month period has expired
that property shall be valued at the fair market value at the date of disposition, the sale price
