Income tax lesson 1: property taxation

Question 1

Capital Assets

Answer 1

Section 1221(a) of the IRC defines what is not a capital asset, including: - Inventory, - Depreciable property used in a trade or business, - Copyrights and creative works (if held by the creator of such works), and - Accounts and notes receivable

Question 2

Section 1231 Assets

Answer 2

Depreciable property or real property used in trade or business

Section 1231 assets do not include:

• Inventory,
• Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or
• Copyrights or creative works

Section 1231 specifically includes certain property, such as:

• Timber,
• Coal,
• Iron Ore,
• Certain Livestock, and
• Unharvested crops (under certain conditions)

Question 3

ordinary income assets

Answer 3

Assets that are not capital nor 1231 assets

including inventory, accounts receivable, creations in the hands of the creator, and copyrights in the hands of the creator.

Question 4

Cost also includes:

Answer 4

Sales tax
freight
installation and testing
excise taxes
legal and accounting fees (when they must be capitalized)
revenue stamps
recording fees
real estate taxes (if assumed for the seller)

Question 5

Increases to Basis

Answer 5

Capital improvements: such as addition on your home, a new roof, paving your driveway, installing central air conditioning, or rewiring your home

Assessments for local improvements, including water connections, sidewalks, and roads

the cost of restoring damaged property after a casualty loss

legal fees, including the cost of defending and protecting a title to the property

zoning fees

Question 6

Decreases to basis

Answer 6

exclusion from income of subsidies for energy conservation measures

casualty or theft loss deductions and insurance reimbursements (business only)

deduction for clean fuel vehicles and clean fuel vehicle refueling companies

section 179 deduction

credit for qualified electric vehicles

depreciation

nontaxable corporate deductions