Chapter 7: Property Tax Transactions Flashcards
How is depreciation recaptured for Section 1245 (tangible personal) property?
If you have a gain, it is reported as ordinary income to the extent of prior depreciation. Rest is a capital gain.
How is inherited property valued? What are alternatives?
Inherited property’s basis is valued at the FMV on the date of death
You can elect to use the alternate valuation date (AVD) which would make the basis the earlier of
- The date the property was transferred to the beneficiary OR
- Six months after the date of death
What are some examples of capitalized costs under UNiCAP?
Pre-production costs: Design, bidding expense, purchasing
Production costs: Direct materials, labor, direct and indirect production costs (ex: factory overhead)
Pre-sale costs: Storage, handling, excise tax before sale
What are the dual basis rules?
If a donee has an asset whose value drops below the donor basis, they must keep track of both the donor’s basis and the FMV.
- The higher donor basis is used to calculate subsequent gain on sale
- The lower FMV on the gift date is used to calculate the subsequent loss on sale
- If the selling price is BETWEEN these two amounts, no gain or loss is recognized
- If lower than the FMV it is a short term loss
- If higher than donor basis it is a long term gain
What does Section 291 change for C corporation’s Section 1250 gains?
The difference in amount of an unrecaptured Section 1250 between a C corporation and an individual is multiplied by 20%. This amount is also treated as an ordinary gain and the rest is a Section 1231 gain.
What is additional depreciation for Section 1250 depreciation recapture?
If the asset was held for a year or less, all depreciation is additional depreciation
If the asset was held for over one year, additional depreciation is depreciation over the amount that would have been taken under straight line.
What is the de minimus safe harbor amount election? How can you qualify for this election?
Items or invoices under $5,000 may be expensed instead of capitalized if the election is made
You can qualify for this election if you have audited financial statements. If you do not, then the amount is $2,500
How is depreciation recaptured for Section 1250 (real) property?
Gain up to additional depreciation is treated as an ordinary gain.
The excess is an unrecaptured 1250 gain which is treated as a Section 1231 gain (LTCG 25%).
How are Section 1231 (noncurrent business) assets treated?
Net 1231 loss is an ordinary loss
Net 1231 gain is a long term capital gain
*Asset MUST be held longer than one year in business
How are like-kind exchanges for real property treated?
Real property for investment or in a business can be exchanged tax free.
If boot (cash, unlike property, relief from debt) is received a gain is recognized. The gain is the lesser of the FMV of boot received or the realized gain.
Who must follow the uniform capitalization rules?
Any trade or business that:
- Produces real or tangible personal property
- Acquires property for resale with average annual gross receipts for the past 3 years of more than $26 million
How are losses treated for an individual?
Net capital loss of $3,000 is deducted against ordinary income. Claim short-term losses first.
Carryforward the rest indefinitely.
How are gains from sale of personal residence treated?
The first 250k (500k MFJ) of the gain is not recognized if it was your principal residence for at least 2 of the 5 previous years.
Can do every 2 years.
How are long term and short term gains netted?
If both long term and short-term end up as gains, report the short-term gain at an ordinary tax rate and the long term at a special tax rate
If both long term and short term are losses, they are just reported separately
If they are different, net them together and the larger absolute value of the two is the gain/loss’s category
