Basis - Partner Basis, Flashcards
Calculate Partners Basis
Partners Beg Basis
+ Share of partnership income/other income
+Additional Contribution
+share of Increase in Liab
- Share of Losses/other deductions
- share of Decrease in Liab
- share of cash/ property Distributions
TRUE/FALSE. Partnerships because they are pass through entites cannot be treated as 501(c) corporations
TRUE
What is the Order of Operations that the IRS has to calculate Partnership basis
- increase for income and excess deductions,
2.decrease for distributions, - decrease for nondeductible expenses and losses,
- and then adjust for liabilities
What is the purpose of calculating partnership basis
● Purpose of Basis:
The partner’s basis is crucial for determining the taxable gain or loss when the partnership
interest is sold and for determining the ability to deduct partnership losses.
Key Points to remember about cash distributions
● Basis Reduction: Cash distributions reduce the partner’s basis but cannot drop it below zero.
● Tax Implications: If the distribution exceeds the partner’s basis, the excess may be taxed as a capital gain.
● Non-Cash Distributions: The calculation would differ if the distribution were in property rather than cash.
● Order of Operations: The basis is first reduced by the cash and then by the market value of property distributed.
What is the basis in gift
if FMV>Donors Adj Basis = use donors adj basis and HP
if FMV <Donors adj Basis = use if sold at amt btw donors adj basis then it $0 gain realized, if <FMV then FMv and HP is date afte gift given, if >Donors adj basis then donors adj basis, and hP is donors HP
in a wash sale the disallowed loss is from the initial sale, then u add it to the new basis price u bought it, total of which then becomes your new adjusted basis
Here are the most common classes and types of property:
● Five-year class:
○ Computers, printers, copy machines, vehicles, etc.
● Seven-year class:
○ Office furniture and fixtures, desks, chairs, etc.
● 15-year class:
○ Leasehold improvements, land improvements,
fencing, landscaping, etc.
● 27.5-year: Residential rental property
● 39-year: Nonresidential real property (business
buildings)
What is the Basis of property for Inheritance
FMV at date of death
Order of depreciation deductions:
IBM –
● I - Section 179 Deduction
● B - Bonus Depreciation
● M - MACRS Depreciation
Real vs personal property
“Real property” refers to land and anything permanently attached to it, like buildings, while “personal property” refers to movable items that are not fixed to land, such as furniture, vehicles, or equipment; essentially, the key distinction is whether the property can be easily moved or not.
Key points about real property:
Includes land, buildings, and fixtures permanently attached to the land.
Cannot be easily moved.
Considered a fixed asset.
Key points about personal property:
Includes movable items like furniture, vehicles, clothes, and electronics.
Can be readily transferred from one location to another.
May also include intangible assets like stocks and patents.
is Treasury stock an asset
No, its not an asset and not a capital asset, its a contra equity account. Treasury stock is when a company buys back its own assets
Start up costs
Other eligible business start-up costs include:
Customer surveys
Market research expenses (publications, focus groups, consulting, etc.)
Product research
Site selection costs (i.e. money you spend searching for and securing an office or workspace)
Advertising
Wages and salaries for training
Professional and consultant fees
Costs associated with acquiring an existing business
Costs of leasing a business property
Equipment costs
Organizational expenses
Organizational costs” refer to the expenses directly related to forming a legal business entity, like filing fees, legal fees for drafting incorporation documents, and accounting costs to set up the company’s books, while “startup costs” encompass all the expenses needed to begin operations, including things like office space rent, initial inventory, marketing, and employee salaries, beyond just the legal formation process.
