Chapter 10 - Basis Rules

Question 1

Nonrecourse debt

Answer 1

secured by collateral but for which borrower is not personally liable - bank can seize that property but can’t go after borrower’s other assets

Question 2

Car used for business depreciation time

Answer 2

5 years

Question 3

Contemplation of death rule

Answer 3

Recipient must live for at least one year after gift to receive step up in basis. If not then the original basis stays with the gift.

Question 4

Carryover basis calculation when gift tax is paid

Answer 4

(Appreciation in property/FMV of property) x gift tax paid = increase in basis

Question 5

Dual basis rule

Answer 5

For gain = adjusted basis of donor
For loss = FMV of property on date of gift
Anything between adjusted basis and FMV = no tax

Question 6

Holding period for gifted property

Answer 6

Donor original holding period unless dual basis asset is sold for a loss then holding period starts on date of gift

Question 7

Straight line depreciation

Answer 7

spread out evenly over the life of the asset - residential and commercial property

Question 8

Accelerated method

Answer 8

depreciation greater earlier on and declines in later years until the cost of the asset is fully recovered

Question 9

Residential property deprecation time

Answer 9

27.5 years

Question 10

Commercial property depreciation time

Answer 10

39 years

Question 11

Real estate depreciation

Answer 11

straight line only

Question 12

Personalty depreciation

Answer 12

SL or accelerated
Double declining (less than 10 year) or 150% declining balance (10+ years)

Question 13

Personalty first year depreciation

Answer 13

Half year convention - 1/2 year of depreciation regardless of when asset was put into service
Mid quarter convention - if more than 40% placed in service in 4th quarter

Question 14

Real estate first year depreciation

Answer 14

Mid month convention - the earlier in the year the property is placed into service the greater the first year depreciation

Question 15

Intangible property depreciation

Answer 15

straight line 15 yr period

Question 16

IIRC Section 179 Immediate expense of capital acquisitions limitation

Answer 16

$1,080,000 and cannot be used to generate a loss - $2,700,000 phaseout

Question 17

Bonus depreciation

Answer 17

100% or 50%
Can create loss
no limit or phase out

Question 18

3 types of assets

Answer 18

Capital assets
Ordinary income assets
Section 1231 assets

Question 19

Ordinary income assets

Answer 19

Accounts receivable
creative works in the hands of the author
inventory

Question 20

Section 1231 assets

Answer 20

Depreciable real or personal property held for use in a trade or business or for the production of income

Question 21

Capital asset taxation

Answer 21

Short term - ordinary income
long term - long term cap gain rates

Question 22

Ordinary income asset taxation

Answer 22

ordinary income

Question 23

Section 1231 asset taxation

Answer 23

long term cap gains rates and ordinary losses

Question 24

Capital assets
ACID

Answer 24

everything except
Accounts receivable
Creative works in hands of author
Inventory
Depreciable real or personal property

Question 25

Long term cap gain rate on collectibles

Answer 25

28%

Question 26

Net investment income tax

Answer 26

Lesser of
Net investment income or
MFJ $250,000
MFS $125,000
Single $200,000