M1: Basis and Holding Period of Assets

Question 1

Purchased property

Answer 1

basis = cost + capital improvement-acc. depreciation
holding period = purchase date

General rule: Donor’s cost basis = Rollover cost/NBV
EXCEPTION: if fair market value at date of gift is lower than rollover cost basis from donor, the basis of the donee’s depends on the future selling price of the asset

Sale of gift at price greater than donor’s rollover basis: gain shall be difference between the sale price and rollover basis

Sale of gift at price less than lower FMV: the basis of the gift is the fair market value at the time the gift was given

Sale less than rollover cost but greater than lower fair market value (in the Middle): Neither gain or loss, the basis is to the done is the “middle” selling price.

Question 2

Inherited property basis

Answer 2

General rule: date of death FMV becomes basis

Alternate valuation date Rule: value of the gift six months after date of death or date distributed if before 6 months

Question 3

De minimis rule

Answer 3

companies can make a de minimis annual expense election regarding expenditures to acquire or produce property if they have a capitalization policy

• capitalization policy must be written accounting policy for nontax purposes that treats as an expense in the financial statements:
• under a certain dollar amount
• useful life of 12 months or less
• if company has an applicable f/s; maximum amount allowed for federal tax purposes is $5k per asset
• if a company does not have an applicable f/s, the max amount is $2.5k per asset

Question 4

Safe Harborts

Answer 4

Qualifying small taxpayers (qst) can expense costs related to eligible building if they do not exceed lesser of 2 percent of unadjusted basis of the building or $10,000.

• a qst is a taxpayer with average annual gross of $10 million or less during the three preceding tax years
• eligible building is any building with an unadjusted basis that does not exceed $1 million