CH. 10.1 BASIS OF ASSETS Flashcards
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WHAT IS THE TAX BASIS FOR A PURCHASED ASSET?
GENERALLY WHEN AN ASSET IS PURCHASED FOR USE IN TRADE OR BUSINESS THE COST INCLUDES,
1) ALL ORDINARY AND NECESSARY COST TO ACQUIRE THE PROPERTY,
2) MAKE THE PROPERTY READY FOR ITS INTENDED USE,
3) AND PLACE THE PROPERTY INTO SERVICE.
THE SUM OF THESE COST ARE THE PROPERTY’S DEPRECIABLE /AMORTIZABLE TAX BASIS.
FYI FINE ARE EXCLUDED* VEHICLE INSURANCE FOR VEHICLES ARE EXCLUDED
WHAT IS THE TAX BASIS OF A PERSONAL ASSET CONVERTED TO BUSINESS USE WHEN AN INDIVIDUAL TAXPAYER PURSUES A BUSINESS ACTIVITY?
SEE SCREENSHOT
WHAT IS THE BASIS OF PROPERTY ACQUIRED BY GIFT?
*FOR APPRECIATED PROPERTY THE DONEE BASIS AND HOLDING PERIOD ARE THE SAME AS THE DONOR’S (STEPS INTO)
*FOR DEPRECIATED PROPERTY THE DONEE MUST KEEP TRACK OF “DUAL BASIS”
THESE RULES MINIMZE THE GAIN OR LOSS REALIZED BY THE DONEE.
WHAT IS THE EFFECT OF THE DONEE’S BASIS WHEN GIFT TAX WAS PAID BY THE DONOR?
A DONOR MAY GIFT UP TO 17K PER DONEE A YEAR WITHOUT ANY GIFT TAX CONSEQUENCES. iF ANY GIFT TAX IS DUE ON A TAXABLE GIFT, THE DONOR IS REPONSIBLE FOR THE TAX.
IF THE DONOR PAYS A GIFT TAX ON THE GIFT, THE PORTION OF THE TAX PAID ATTRIBUTABLE TO THE PROPERTY’S APPRECIATION AT THE DATE OF THE GIFT IS ADDED TO THE DONEE’S BASIS.
SEE SCREENSHOT
WHAT IS THE BASIS OF PROPERTY RECEIVED THROUGH INHERITANCE?
IN ADDITION - THE HOLDING PERIOD FOR INHERITED ASSETS IS ALWAYS DEEMED TO BE LONG TERM.
THE AVD IS 6 MONTHS AFTER THE DOD - FYI
THEIR IS AN EXCEPTION TO THE RULE, THE FMV IS NOT APPLICABLE TO APPRECIATED PROPERTY ACQUIRED BY THE DECEDENT BY GIFT WITHIN ONE YEAR BEFORE DEATH IF SUCH PROPERTY THEN PASSES BACK TO THE ORIGINAL DONOR OR DONOR’S SPOUSE.
WHAT IS A WASH SALE?
SEE SCREENSHOT
WHAT ARE ORGANIZATIONAL COST?
- INTANGIBLE’S
- GENERALLY INCURRED PRIOR TO THE STARTING OF THE BUSINESS
- COST OF SELLING OR MARKETING STOCK AND SYNDICATION COSTS DO NOT QUALIFY AS ORGANIZATIONAL EXPENDITURES. E.G., UNDERWRITER FEES
- STOCK iSSUANCE COST ARE NOT ORGANIZATIONAL EXPENSES. THE COST ARE NOT AMORTIZED INSTEAD THEY REDUCE APIC.
- FYI A CORPORATION MAY IMMEDIATELY DEDUCT UP TO 5K OF ORGANIZATIONAL COST AND AMORTIZE THE REMAINDER RATABLE OVER 180 MONTHS. THE CONVENTION IS THE FULL MONTH.
- DOLLAR FOR DOLLAR PHASE OUT ORGANIZATIONAL COST OVER 50K WITH A 55K THRESHOLD
WHAT ARE START UP COST?
*INTANGIBLES
1) PRE-OPENING COST - EXPENDITURES TO ADVERTISE A NEW BUSINESS AND PAYMENTS TO EMPLOYEES BEFORE THE BUSINESS OPENS ARE START-UP COSTS
2) ACQUIRING - CONSULTING FEES,
- START UP COST DO NOT INCLUDE COST FOR INTEREST, TAXES, AND RESEARCH AND EXPERIMENTATION
DOLLAR FOR DOLLAR PHASE OUT START UP COST OVER 50K WITH A 55K THRESHOLD
WHAT ARE LOAN COST?
*INTANGIBLES
-COST INCURRED WITH GETTING A LOAN FOR BUSINESS-USE PROPERTY, THEY ARE CAPITALIZED AS LOAN COSTS AND CAN BE AMORTIZED OVER THE PERIOD OF THE LOAN.
-DEBT ISUANCE COST REDUCE THE LOAN AMOUNT AND IS AMORTIZED OVER THE LIFE OF THE LOAN.
WHAT TRIGGERS TANGIBLE PROPERTY TO BE CAPITALIZED?
SEE SCREENSHOT
*AMOUNTS PAID TO IMPROVE PROPERTY ARE REQUIRED TO BE CAPITALIZED
WHAT ARE THE CHARACTERESTICS OF PERSONAL PROPERTY?
WHAT IS A LIKE KIND EXCHANGE?
BEGINNING IN 2018, ONLY REAL PROPERTY EXCHANGED FOR REAL PROPERTY QUALIFIES UNDER THE LIKE-KIND EXCHANGE RULES. IN OTHER WORDS THE BASIS OF A NEW ASSET WOULD BE THE VALUE GIVEN UP,
FOR PERSONAL PROPERTY SUCH AS A VEHICLE A GAIN MUST BE RECOGNIZED AND THE BASIS OF THE NEW ASSET WILL BE THE LIST PRICE/FMV.
*CONSTRUCT A J/E FOR THA AMOUNT GIVE UP, FOR EXAMPLE THE BOOK VALUE AND CASH ARE CREDITED AND THE LIST PRICE OF THE NEW ASSET IS DEBITED, AND THE DIFFERENCE WOULD BE A GAIN OR LOSS.
WHAT IS THE DE MINIMIS SAFE HARBOR FOR EXPENSING?
THIS PROVISION ALLOWS A BUSINESS TO DEDUCT UP TO 5K OF THE COST OF QUALIFIED PROPERTY.
THIS PROVISION APPLIES AT THE INVOICE LEVEL OR ITEM LEVEL (IF MULITPLE ITEMS)
5K IMMEDIATE EXPENSE FOR HAVING AN APPLICABLE F/S
2.5K MMEDIATE EXPENSE FOR NOT HAVING AN APPLICABLE F/S
