Capital Gains_Losses and 1231 Property

Question 1

What is the percentage of qualified small business exclusion of stock gain?

Answer 1

50% (increased to higher levels for certain temporary periods).

Question 2

List the characteristics of ordinary loss deduction on sale of worthless small business stock.

Answer 2

1. Corporation issued stock for less than $1 million;
2. Corporation must conduct an active business;
3. Taxpayer received stock from corporation in initial offering.

Question 3

Define “long-term assets.”

Answer 3

Assets held over one year.

Question 4

Describe the elements of the net capital loss deduction for individuals.

Answer 4

1. Deductible up to $3,000 per year;
2. For AGI;
3. Also limited to taxable income;
4. Excess loss carries forward; no limit on carryforward period.

Question 5

What is the maximum tax rate for capital gains from the sale of collectibles?

Answer 5

The maximum rate is 28%.

Question 6

How can corporations use their capital loss deduction?

Answer 6

1. Can only use capital losses to offset capital gain net income; no deduction for net capital losses;
2. Unused losses are carried back three years and forward five years.

Question 7

What is the net capital loss limit for individuals?

Answer 7

The loss limit is $3,000.

Question 8

List the qualified small business stock exclusion of gain requirements.

Answer 8

1. Stock held for more than five years after initial issuance;
2. Stock from active corporation with assets less than $50 million.

Question 9

What is the ordinary loss deduction limit on the sale of a worthless small business stock?

Answer 9

$50,000 ($100,000 if married filing joint).

Question 10

What depreciation is subject to recapture under Section 1250?

Answer 10

Excess depreciation (depreciation claimed over straight-line).

Question 11

Define “Section 1245 property.”

Answer 11

All property other than land and building.

Question 12

What depreciation is subject to recapture under Section 1245?

Answer 12

All depreciation claimed.

Question 13

What is the maximum tax rate for gain attributable to depreciation claimed on real estate?

Answer 13

25% for straight line depreciation recapture.

Question 14

What is the period of time that lookback rules apply to Section 1231 gains?

Answer 14

5 years.

Question 15

What is the class life for realty?

Answer 15

39 years (27 1/2 years for “residential”).

Question 16

Describe the business use test for listed property.

Answer 16

1. Business use must exceed 50% of total use;
2. Business use is limited to use in the trade or for the convenience of the employer;
3. Failure to meet business use means cost recovery limited to straight line;
4. But note that business and investment use can be depreciated.

Question 17

Define “listed property.”

Answer 17

Assets, such as computers and vehicles (but not cell phones), that are commonly used for business and personal purposes.

Question 18

What is the general convention for personalty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 18

The general convention is mid-year.

Question 19

Under what circumstances can a convention other than the mid-year convention be used for all personalty?

Answer 19

A mid-quarter convention is used for all personalty if more than 40% of personalty is purchased in last quarter of the year.

Question 20

List the alternatives to the Modified Accelerated Cost Recovery System (MACRS).

Answer 20

1. Straight line for personalty;
2. AMT system - 150% declining balance;
3. Alternative depreciation system-straight line over extended life;
4. Units of production.

Question 21

What is the depreciation method for personalty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 21

The depreciation method is double declining balance.

Question 22

What is the depreciation method for realty under the Modified Accelerated Cost Recovery System (MACRS)?

Answer 22

The depreciation method is straight line.

Question 23

What criteria should be considered in making a determination to expense an asset for income tax purposes?

Answer 23

1. Tangible Personalty;
2. Lesser of business income or $500,000 in 2012;
3. Phased out dollar for dollar if tangible personalty asset purchases exceed $2,000,000 in 2012.