EA Part 2-Passkey 9-10 Flashcards
Section 1245 property includes any property that is or has been subject to depreciation or amortization and is:
- Personal property,
- Other tangible property (other than a building/its components):
a) Used in manufacturing, production, extraction or furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services,
b) A research facility used for the activities above
c) A facility used in (production) for the bulk storage of fungible commodities, - Real property (other than ppt with recapture deductions)
- A single purpose agricultural or horticultural structure, or
- A storage facility (other than a building/its structural components) used for the distribution of petroleum.
The basis of the property you receive, in a partially nontaxable exchange, is the same as the basis of the property you gave up, with the following adjustments.
*Additional money paid, including exchange expenses,
+FMV of any non-like kind property transferred to other party,
+Net liabilities assumed by the taxpayer, and
+Any gain recognized on the exchange.
- Boot received (money, FMV of non-like kind property, net liabilities other party assumes)
- Any loss recognized on the exchange.
Section 197 are
intangibles;
such as copyrights and patents, which must be amortized not depreciated
MACRS is the depreciation method generally used for most
tangible property;
such as machinery, buildings, & autos
Placed-in-service date is when ___ begins.
depreciation
Item must be ready & available for use.
An asset cannot be depreciated below its __
salvage (or scrap) value. Therefore basis for deprec. is cost minus salvage value.
Three common depreciation methods:
1) straight-line
2) double-declining balance
3) unit-of-production method (eg., # of miles driven or units produced)
To properly report the disposition of an asset, a TP must first determine whether it’s a…
- capital asset
- noncapital asset or
- Section 1231
Listed property includes
cars, other vehicles for transport, property use for entertainment, recreation or amusement, certain computers
Capital asset
- personal-use assets
- collectibles and
- investment ppt such as stocks, bonds, other securities
Section 1231 Assets are ___
- business (noncapital) assets that have been held > 1 year
- certain business & investment ppt disposed of in involuntary conversions
- real ppt for business use
- business-use ppt involuntarily converted by theft, casualty, condemnation
If TP has a net loss from all Section 1231 transactions, the loss is treated as __
ordinary loss.
Noncapital assets
- inventory
- accounts receivable
- other assets used in a trade or business
- residential rental property
- used to produce royalties
Section 1231 assets include depreciable business property such as __
- buildings,
- machinery
- timber and unharvested crops
- livestock
- leaseholds.
Sections 1231 assets can also include nondepreciable ___
real property (such as land that is purchased for business use)
If TP has a net gain from all Section 1231 transactions, the gain is generally treated as __
capital gain (except for depreciation recapture, which is taxed as ordinary income).
Sections 1231 assets can also include intangibles like ___
a patent, copyright or other intangible asset used in business.
Types of buildings that qualify for Section 1231 treatment:
- hotels
- office buildings
- warehouses
- residential apt complexes
Sections 1231 assets can also include any asset held for more than 1 year that is ___
used for the production of income and has been involuntarily converted due to theft, casualty or condemnation.
Depreciation recapture is required when ___
a business sells previously depreciated or amortized property at a gain. Portion of gain attributable to deprec. is treated as ordinary income.
A fungible good or asset is ____
is essentially interchangeable with other goods or assets of the same type.
Ex: dollar bill; no difference between one dollar and another.
Section 1250 property generally consists of ___
- buildings (& structural components)
- other inherently permanent structures
- land improvements of general use and purpose.
Form 4797
Sales of Business Property
Examples of Section 1250 property
- residential rental ppt
- factory bldgs
- office bldgs
Form 6252
Form 6252 Installment Sale Income
Section 1250 property is general depreciated using __
straight-line method (and can mean no depreciation recapture.)
Section 1031
Like-Kind Exchanges; income from the exchange is not taxable currently but is deferred until acquired ppt is later sold or disposed of
Section 1031 timetables
Exchanger has 45 days max after sale to identify list of potential replacement ppts, and 180 days after sale to acquire one of those properties.
If qualified intermediary is not used for a Section 1031 exchange, ___
the exchange will not be allowed.
A business or individual may have to recognize gain on a partially taxable like-kind exchange, but would never recognize a ___
loss. However, a loss on a like-kind exchange would affect the TP’s basis in ppt received.
The basis of ppt received in a like-kind exchange is generally __
the adjusted basis of the property transferred.
If a TP trades ppt and also pay money, the basis of the ppt received is ___
the basis of the ppt given up, increased by any additional money paid.
Section 1033 conversion
TP may avoid reporting gain on an Involuntary Conversion if he receives or invests in ppt similar to the converted ppt.
The replacement period for an involuntary conversion generally ends ____ after the end of the first tax year in which any part of the gain on the condemnation is realized.
- 2 years
- 3 years allowed for real ppt held for investment, such as office bldgs or residential rentals.
- 4 years for livestock due to weather.
- 5 yrs in federally declared disaster areas
A partially nontaxable exchange is an exchange in which ___
you receive unlike property or money in addition to like property.
