Deck 17

Question 1

Involuntary conversion

Answer 1

Generally no gain recognized; reinvestment for personal property must be within 2 years; reinvestment for real property must be within 3 years; gain recognized only for boot

Question 2

Losses that are nondeductible “WRaP”

Answer 2

W: wash sales; R: related party transactions; and P: personal loss

Question 3

Tax rate for net long-term capital gains for individuals:

Answer 3

Max is 20%; can use 15% or even 0%

Question 4

Tax rate for net short-term capital gains for individuals:

Answer 4

Treat as ordinary income

Question 5

Carry back and carryforward rules for the different types of losses:

Answer 5

Operating losses: offset income, carry back 2 and carry forward 20; individual capital losses: $3000 to offset income, no carry back, carry forward forever; corporate capital losses: no offset of income, carry back 3 and carry forward 5

Question 6

MACRS Depreciation Rules for property:

Answer 6

Salvage value is ignored, use either half-year convention or mid-quarter convention; includes machinery and equipment

Question 7

Number of years under MACRS for residential rental property

Answer 7

27.5 years; includes apartments and duplex rentals

Question 8

Number of years under MACRS for nonresidential rental property

Answer 8

39 years; office buildings and warehouses

Question 9

MACRS Depreciation Rules for Real Estate:

Answer 9

Residential rental property (27.5 years); Nonresidential real property (39 years); use mid month convention; includes building

Question 10

Section 179 expense limit

Answer 10

$25,000 of new or used personal property; reduced by amount that exceeds $200,000

Question 11

Percentage depletion deduction limit

Answer 11

50% of taxable income from the well or mine

Question 12

Business organization and start-up costs

Answer 12

$5000 + remainder over 180 months

Question 13

Net section 1231 losses are treated as:

Answer 13

Ordinary losses

Question 14

Section 1231 (capital) gain:

Answer 14

Recognized gain is the amount above accumulated depreciation, if any; if none above accumulated depreciation then treat as ordinary gain

Question 15

Tangible personal property that is not inventory must be:

Answer 15

Capitalized

Question 16

De minimis rule

Answer 16

Annual expense election only if the policy is written, under a certain dollar amount, and/or property with an economic useful life of 12 months or less

Question 17

What is the maximum amount for the de minimis rule if a company has an applicable financial statement?

Answer 17

$5,000; if no applicable financial statement then max amount is $500

Question 18

Recapture rule for section 1245 gain is:

Answer 18

The lessor of: depreciation take, or gain recognized

Question 19

When does a partnership terminate?

Answer 19

Terminates for income tax purposes when 50% or more of its interests change hands within 12 months.

Question 20

Partnership’s basis =

Answer 20

Adjusted basis + cash contribution - share of partnership liabilities

Question 21

When a partner’s share of partnership liabilities increases, the partner’s basis in the partnership:

Answer 21

Increases by his share of the increase