Federal Taxation of Property Transactions Flashcards
What is the safe harbor tax provision for deducting qualifying de minimis costs instead of capitalizing and depreciating costs for entities that have an audited financial statement vs an entity that does not have an audited financial statement?
Audited financial statements - $5,000
No audited financial statements - $2,500
How do you calculate the tax basis of a purchased asset?
Purchase price (less trade discounts)
+ Sales tax
+ Shipping (FOB shipping point)
+ Insurance while in transit
+ Installation costs
+ Costs to make asset ready for intended use (less cash received for salvaged materials)
+ Testing fees
How do you calculate the adjusted tax basis of an asset?
Total capital cost of asset
+ Capital improvements
- Depreciation/amortization taken
When converting personal-use assets to business-use assets, what is the tax basis for the business-use asset?
The lesser of (1) the taxpayer’s adjusted basis of the asset or (2) the FMV of the asset on the conversion date.
What is the donee’s basis and holding period when gifted property has appreciated (i.e. FMV when gifted > donor’s adjusted basis)?
The donee would take the donor’s adjusted basis and holding period (stepping into the donor’s shoes).
What is the donee’s basis and holding period when gifted property has depreciated (i.e. FMV when gifted < donor’s adjusted basis)?
Donee must keep track of dual basis (i.e. both the donor’s adjusted basis and the FMV on the date of the gift). When depreciated property is sold, the donee is to minimize the gain or loss realized by taking whichever basis would accomplish that for them.
What is the annual gift tax exclusion for a donor?
$17,000 per donee
How do you calculate the portion of the gift tax paid due to appreciation for purposes of adding to a donee’s basis in gifted property?
(FMV of gift - donor’s adjusted basis / FMV of gift - annual donor exclusion) x gift tax paid
When an alternative valuation date is used for the beneficiary’s basis for inherited property, what is the FMV of the inheritance?
The FMV on the earlier of the date of distribution or the alternative valuation date, as long as the alternative valuation date is within 6 months of the date of death.
What is a beneficiary’s basis for inherited property?
FMV on date of death, unless alternative valuation date is used.
What are the wash sale rules that apply to securities?
If the same or substantially similar securities are purchased within 30 days before or after a sale of securities, any potential loss would be nondeductible and would be added to the basis of the acquired securities. Gains are taxable.
What is the allowable immediate deduction election for organizational and start-up costs?
Up to $5,000 immediate election, for total costs up to $50,000. The remaining balance is amortized straight line over 180 months, starting in the month the entity’s operations began.
For total costs between $50,000 and $55,000, the $5,000 immediate election is prorated - $5,000 - (Total costs - $50,000)
How do you calculate 150% declining balance method of MACRS depreciation?
Carrying value x (1.5 / MACRS life)
How do you calculate 200% declining balance method (double declining balance)?
Carrying value x (2 / MACRS life)
When is mid-quarter convention used for calculating depreciation?
When more than 40% of the total property purchased during the year was purchased during the last quarter of the year, so mid-quarter convention would apply to all property purchased during the year.
