Federal Property Tax

Question 1

In a gift situation is the holding period a long term or short term capital gain?

Answer 1

If a gift will use the gain basis (FMV> basis) at time of gift than holding period will include the donor’s holding period. If that is over a year than it is a LT capital gain.

If the gift will use a loss basis (FMV< basis) at time of gift, then the holding period begins at the time the gift was acquired.

FYI loss basis is the lower of FMV at date of gift or adjusted basis. In this case a gain or a loss will depend if gift is later sold above the basis (gain) or below the adjusted basis (loss). If it is sold between the FMV and the basis then no gain is recognized

Question 2

What is the holding period for inheritance?

Answer 2

Always LT

Question 3

Are unused net capital losses treated as short or long term?

Answer 3

Always as short term

Question 4

What does Section 351 say about exchanges involving investments, with 80% ownership?

Answer 4

Transfers of only property that amount to at least 80% ownership ( can include more than one) do not have have to recognize gain or loss.

If section 351 does not apply transferor (individual) must recognize gain and transferee (Corp) must take basis of FMV in property

Question 5

Can installment sales occur for a related party?

Answer 5

No, taxpayer would report all payments in a lump sum. Any gain would be ordinary gain and no losses allowed.

Also if it is a like kind exchange and the asset is sold within two years than the gain form original transaction is recognized.

Question 6

How is bonus depreciation used?

Answer 6

It can be used in addition to section 179 deduction for equipment with a recovery period of 20 years or less. The depreciation taken would be 100% which would be the remainder not capture in the 1,040,000 of section 179

Question 7

What is the look back period for section 1231 gains and losses?

Answer 7

Any gains should be offset by any losses unused for the past 5 years. Gains are ordinary up to the amount of losses. Any excess are LT capital gains.

Question 8

What is a personalty property?

Answer 8

Movable property. This type of asset uses the half year depreciation table. Unless 40% of the assets were placed into service in the last quarter. If so then the mid quarter convention is used.

Question 9

What is a real property?

Answer 9

Land and anything affixed to land, like buildings crops or machinery.

This assets type uses the mid month convention when placed into service. Otherwise it uses the straight line.

Question 10

What are the 5-year and 7year assets?

Answer 10

For 5 year it’s electronics and cars

For the 7 year it’s office furniture and equipment/machinery

Question 11

What are the 1231 rules?

Answer 11

If 1231 (asset held for one or more years)sales add up to a gain then its is a long term capital gain if a loss then it is ordinary income

Also any 1231 gain must be absorbed by any losses going back 5 years.

Question 12

How is a real property gain calculated?

Answer 12

For any real (buildings) property that uses accelerated depreciation will use section 1250 recapture. Which states that the gain up to the accelerated depreciation amount is taxed as ordinary income.

If accelerated depreciation is not used then up to the accumulated depreciation amount is taxed at 25%.

Question 13

How are the gains and losses of depreciable property other than buildings calculated?

Answer 13

Section 1245 states that gains recaptured as ordinary income will be the lessor of a gain recognized or accumulated depreciation. Rest is 1231 gains

Question 14

Wash sale:

Individual bought stock for 10k in year 7. He sold the shares on 12/27/ year8 when the value dropped to 2k. On January 3 year 9 he repurchased 100 shares for 3k what is the gain or loss recognized and what is the basis for the stock?

Answer 14

A wash sale states that any sell and repurchase of identical stock within 30 days will not recognize losses.

So the 8k loss (2 amt realized - 10 basis) is not recognized.

And the basis will be 11k (3k cost + 8k loss)

Question 15

Related party:
Tang sold stock he bought for 23k, to his father for 18k. His father sold the stock to an unrelated party for 30k. What is the father basis on the stock and the realized loss on the sale?

Answer 15

The basis for the father is 18k, what he paid.

The loss would be:
1st sale: amt realized 18,000
- basis. 23,000
Loss realized 5,000 (loss is suspended because of related party rules)

2nd sale: amt realized 30,000
                - basis.             18,000
         Gain recognized.  12,000
           - suspended loss 5,000
               Gain realized     7,000

Question 16

What type of business does section 291 apply too?

Answer 16

Only to corps and it’s only for realty (buildings) properties.their section recaptures 1231 gains (only) as ordinary income, by multiplying 20% x the lessor of the gain or accumulated depreciation.

Question 17

What does section 291 recapture require?

Building w cost of 200k
Adjusted basis of 170k
Sold for 220k

Answer 17

The sale of a building with a gain will be broken into

1. ) 20% of the lessor of depreciation or gain and will be recaptured as ordinary income
2. ) rest will be 1231 gain

Example:

1.) 200k-170k= 30k
30k x 20%= 6,000 ordinary income

2.) gain is 220 - 170= 50k
50k- 6k= 44k