Chapter 6 - Basis and Property Transactions

Question 1

Capital Acquisition Costs

Answer 1

1. Capital Acquisition expenditures are made by cash, by cash equivalent, in property, with liability or services
2. Improvements are capitalized: a) betterment of property b) new different use of property c) restoration of property d) painting and capital improvements can be capitalized

Question 2

Uniform Capitalization rules

Answer 2

Costs that are necessary to prepare the property for intended use

Question 3

Costs that aren’t capitalized

Answer 3

1. indirect cost: a) marketing, selling, advertising, distribution, research, experimental, Sec 179, strike, warranty, unsuccessful bid, and deductible service costs
2. Producers and Resellers if their company’s average annual gross receipts for the past 3 years do not exceed 27 million
3. property produced by the tp for personal purposes
4. Qualified creative expenses incurred by an individual as a freelance writer, photographer, or artist
5. Property produced under a long term contract

6.Research and development expenses allowable as a deduction

7.Intagible drilling and development costs

8. Timber and certain ornamental trees ( more than 6 years old )
9. Animals, dependent on tp ownership
10. selling, marketing, advertising and distribution costs

Question 4

A Safe harbor

Answer 4

allows routine repairs to be expensed and maintained more than once a year to asset’s class life under ADS

Question 5

like kind - basis in acquired property

Answer 5

Question 6

Exchange Expenses

Answer 6

subtracted from the total of the following ( not til zero ):

1. Cash paid to other party
2. FMV of other ( not like kind ) property received by tp
3. Net liabilities assumed by the other party- excess, if any, of liabilities assumed by the other party over the total of liabilities assumed, cash paid by tp to the other party, and FMV of the other ( not like kind ) property given up by the tp. If the exchange expense exceed , the excess is added to the basis of the like kind property

Question 7

Sec 1033

Answer 7

nonqualifed property

Question 8

What is involuntary conversion of property?

Answer 8

Destruction, theft , seizure, requisition, condemnation, or the threat of imminent requisition or condemnation

Question 9

Section 1033 does not apply to

Answer 9

any realized losses

Personal losses aren’t deductible but casualty losses are likely

Question 10

Replacement period

Answer 10

begins on the earlier of the date of disposition or the threat of condemnation and ends 2 years after the close of the first tax year in which any party of the gain is realized

Question 11

Related in Service use means

Answer 11

1) Owner - User

2) Owner - Investor

3) Owner General