Chapter 4 - Property, Partnership, Estate, and Gift Taxation Flashcards
what is the basis of Gifted property?
Rollover Adjusted Basis unless FMV is less than AB then FMV.
what is the basis of inherited property?
FMV at the time of death
Like Kind exchange Basis in new asset
FV of new asset
minus deferred gain (realized gain minus recognized gain)
plus deferred loss (realized loss)
What AREN’T Capital Assets?
AR from sale of Inv Depreciable Property used in business Land used for Inventory (subdivided by developer) Essentially Inventory Copyrights held by Original Author Treasury Stock
Child (related party) can reduce gain on sale of stock upo to what amount?
Realized Loss of parent (RP seller)
What is the Alternative Valuation date on inherited Property for basis?
6 months after death
What gains do you get to (HIDE IT) i.e no tax paid?
H - Home exclusion ($250k deduction for Single)
I - Involuntary Conversions (to the extent proceeds reinvested)
D - Divorce Property Settlement
E - Exchange of LIKE KIND BUSINESS USE ASSETS
I - Installment sale (hide gain until cash is received)
T - Treasury and Cap stock
what qualifies as like-kind exchange?
the property must be TANGIBLE
Like-Kind gain
Lessor of realized gain or boot recieved
What is section 1231 asset?
REAL or PERSONAL Used in trade or business over 1 YEAR
Section 1245 Gain rules?
For personal property used in business Gain up to Accum Depreciation and Capital after that
This only requires the LESSER of DEPRECIATION taken or GAIN recognized to be recaptured.
Section 1231 Gain/loss rules
Section 1231 losses are treated as ordinary losses
Section 1231 Gains are treated as LONG TERM CAP GAINS
What is section 179 property?
Tangible personal prop purchased from unrelated party, and used in business
MACRS Conventions (which ones apply to real vs machines, how to tell the M&E conventions apart)
Half month (Real Estate - Residential 27.5 years/ Non-residential 39 years) Mid-quarter (Machinery & Equipment) - ( >40% started in Q4) Half Year (Machinery & Equipment)
Section 1250 Rules
Applies to Real Property
Recaptures only the EXCESS OF STRAIGHT-LINE Depreciation.
A Partner’s deductible loss is limited to:
limited to basis, plus any amounts that he is personally liable
What effects the partner’s basis? (5 increase, 5 decrease)
Additions include:
1) Capital Gains
2) AB of property Contributed(at Formation)
3) Cash contributed
4) Partner’s share of liabilities taken on (put in by others)
5) ALL INCOME (taxable or not)
Subtractions include:
1) Cash Distributions
2) Property Distributions (Lesser of AB or Partner’s Remaining Basis)
3) Other partner’s share of liabilities at Formation (we put in)
4) Reduced share of partner’s liability (sold liability)
5)charitable contributions
What gain does partner recognize on liquidation?
P recognizes gain on CASH RECEIVED AND LIABILITIES RELIEVED over outside basis FIRST and ONLY (Property can have zero basis if enough cash)
what gain does partner recognize on formation?
P recognizes gain for mortgage contributed over basis
What gain does partner recognize on non-liquidating distribution? (CRorLA)
2 times
CASH RECEIVED exceeds basis
LIABILITIES ASSUMED by other partners exceed basis
when does a partnership terminate?
when 50% or more of a partnership change hands during 1 year period.
What is included in the K-1 and separately stated on form 1040?
Guaranteed Payments
Partners health insurance premiums
Retirement plan contribution
What is separately stated on the K-1?
Charitable contributions
Net Capital Losses
Dividends Rec’d
WHen is partnership gain ordinary?
Upon sale of Partnership interest, gain is ordinary to the extent of unrealized receivables or appreciated inventory
LLC’s are taxed as? LLC’s owners are called? Are LLC’s owners allowed to participate in management and still have limited liability?
treated as partnership. Members. Yes
what amount of distribution from estate to beneficiary is taxable?
the amount up to the net distributable income (income - expenses)
Gift tax exclusion is what?
$14k
WHat is the calc for estate’s distributable net income?
ALL Income LESS ALL Expenses
EXCEPT
1) Capital gain/losses allocable to corpus
2) Fees Allocable to corpus
when is tax return for estate (form 1041) due?
April 15th
what amount of decedent’s taxable estate is effectively tax free in 2014?
$5,340,000 (applicable gift and estate tax credit is $2,081,800)
difference between simple and complex trusts?
complex trusts-
1) accumulate all current earnings
2) distribute principal (corpus)
3) make charitable contributions
Simple trusts-
1) distribute all current earnings (no accumulation)
2) CANNOT distributre principal (corpus)
3) CANNOT make charitable contributions
BOTH
1) have more than one grantor/beneficiary
2) grantor/beneficiary who is not individual
What is a revocable trust?
if person retains power intrust.
What is a grantor trust?
When the creator is treated as the owner of the trust (also transfers property) it is a grantor trust.
Simple trust calculation?
includes exemption of $300
Four items that qualify for unlimited exclusion from gift tax
1) Payments directly to university for donee’s tuition
2) Payments Directly to health care provider for donee’s medical care
3) Charitable gifts
4) Marital transfers
The charitable contribution deduction on an estates fiduciary income tax return is allowable only if
the decedent’s will specifically provides for the contribution.
When preparing fiduciary income tax return, is an estate or trust allowed an standard deduction?
No
What taxable year must trusts and estate’s adopt?
Trusts must adopt a Calendar year
Estate’s may choose same accounting year as decedent
Can you exclude income from gift tax if governing instrument provides that the specific sum is payable only from the “income” of the estate or trust?
No
when is federal estate tax return due?
9 months after death
What are capital assets?
Investments by the TP that are not inventory
How is a stock surrender treated?
As a SALE OF STOCK (NOT a dividend)
When can a fiduciary deduct administrative expenses paid by fiduciary on fiduciary tax return?
If the estate elects to waive that deduction
MACRS 5 year property? (ALCTC)
Includes A - Automobiles L - Light Trucks C - Computers T- Typewriters C - Copiers
MACRS 7 year property (D&E)
D - computer DESK
E - Office EQUIPMENT
What gifts are subject to UNLIMITED Gift Tax exclusion? (TMCM)
Tuition payment made DIRECTLY to a FOREIGN/DOMESTIC University
Medical payments made DIRECTLY to HEALTHCARE PROVIDER
CHARITABLE gifts
MARITAL TRANSFERS
Explain who gets the Home exclusion
Single ($250K) or MFJ ($500k) where at least ONE PERSON OWNS owns the home for 2 of the 5 years prior to sale AND BOTH people LIVED in it for 2 of the 5 years prior to sale.
Gain eligible for exclusion is reduced by NON-QUALIFIED use (rentals)
Explain Nonqualified use calculation under Home exclusion
If TP owned home for 4 years and rented it out for 2 years and lived in the house for the remaining 2 years years. The TP sold the house for a gain of $100k.
The portion of the gain excluded from the $250K deduction would be ($100K * (2 years Rented/4 years owned) = $50K of gain will be taxed (not excluded)
What losses do you “WRaP” up (Disallow)?
W - Wash Sale (within 30 days) disallowed loss goes to basis of sold property
R - Related parties (Husband wife, Bro Sis, Lineal decedents, >50% or more owned entity); same basis of gift tax
AND
P - Personal Losses
Estate tax distributable net income calculation
Estate (trust) gross income - all income including Cap gains
- including business expenses and CHARITY (unlimited if in will) DO NOT include Cap gain allocable to corpus
=Adjusted total income
+Adjusted Tax exempt interest
=DNI
How much can be deduct for repairs and maintenance under SAFE HARBOR RULES? (2 steps)
FIRST: TAXPAYER Must be a qualifying small tax payer (Less than $10M gross reciepts)
SECOND: BUILDING MUST be Qualifying building (Less than $1M of unadjusted basis)
If these are met, TP may deduct LESSOR OF
- 2% of unadjusted basis
- $10K
How much can be expensed under DE MINIMUS RULES? (3 steps)
FIRST: Company must have written accounting policy about expensing property
SECOND: If Company has APPLICABLE FINANCIAL STATEMENTS, max amount expensed is $5k per item
THIRD: If company does not have applicable financial statements, max amount is $500 AND Cost of item did not exceed $500
