M1 Basis and Holding Period of Assets

Question 1

Three types of property

Answer 1

1) Purchased Property
2) Gifted Property
3) Inherited Property

Question 2

What is the basis of purchased property?

Answer 2

Cost + Capital improvements

Question 3

Purchased Property. Defined as land and all items permanently affixed to the land

Answer 3

REAL Property (Land and buildings)

Question 4

Purchased Property. Defined as all property not classified as real property.

Answer 4

Personal Property (equipment)

Question 5

Purchased property holding period

Answer 5

Purchase Date

Question 6

Purchased property reduced basis? (Calculation of adjusted basis)

Answer 6

NBV*

= Cost - Accumulated Depreciation

Question 7

What is the basis of GIFTED property?

Answer 7

Rollover basis / NBV / Adjusted basis

Question 8

Gifted property. What is the EXCEPTION to the basis rule (basis is usually the NBV/rollover from the donor)?

Answer 8

IF FMV at date of gift is LOWER than the rollover cost basis from the donor, the basis for the donee depends on the donee’s future selling price of the asset.
FMV date of gift < NBV

Question 9

Gifted property. Three scenarios for the exception to the basis rule (FMV date of sale < NBV).
1) When a taxpayer sells a gift for GREATER than the rollover basis, what is the gain?

Answer 9

Difference between the sale price and the rollover basis

*SET UP:
COST = ___
FMV = ___

Then see where sales price falls

Question 10

Gifted property. Three scenarios for the exception to the basis rule (FMV date of sale < NBV).
2) When a taxpayer sells the gift for LESS than the FMV at date of gift, what is the basis of the gift for determining the loss?

Answer 10

FMV
Loss is the difference between the FMV and the sales price

*SET UP:
COST = ___
FMV = ___

Then see where sales price falls

Question 11

Gifted property. Three scenarios for the exception to the basis rule (FMV date of sale < NBV).
3) When a taxpayer sells a gift for a price LESS than the donor’s cost basis but GREATER than the lower FMV at date of gift, what is the gain or loss recognized?

Answer 11

NONE

*SET UP:
COST = ___
FMV = ___

Then see where sales price falls

Question 12

Gifted Property. What is the basis of gifted property for the purposes of depreciation?

Answer 12

LOWER of:

1) donor’s adjusted basis at date of gift OR
2) FMV at date of gift

Question 13

Gift property holding period? (EXCEPT WHEN…)

Answer 13

Rollover holding period (donor’s holding period becomes donee’s holding period) EXCEPT if the FMV date of sale < NBV, use date of gift as the holding period

Question 14

Inherited property. General rule for the basis?

Answer 14

FMV at the date of death

Question 15

Inherited property. Alternative valuation date to the general rule.

Answer 15

Earlier of six months later or date of distribution/sale
*If validly elected
So MAX is 6 months

Question 16

Inherited property holding period

Answer 16

LONG-TERM (“long journey out of the grave”)

Question 17

Capitalize or Expense. General rule is all tangible property that is not ___ must be capitalized.

Answer 17

NOT inventory

*materials and supplies are expensed (less than $200 or economic lift less than 12 months)

Question 18

Capitalize or Expense - amounts paid to acquire or produce property?

Answer 18

Capitalized

Question 19

Capitalize or Expense - Improvements

Answer 19

Capitalized

Question 20

Capitalize or Expense - Intangible property

Answer 20

Capitalized

Question 21

What is the holding period for intangible property?

Answer 21

Starts the date the asset is completed

Question 22

In order to expense certain items (de minimis rule), what two things are required?

Answer 22

1) Capitalization policy must be WRITTEN

2) Applicable financial statement

Question 23

De Minimis Rule. What is the maximum amount allowed for federal tax purposes (expensed)?

Answer 23

$5,000 per asset

*If each asset exceeds this amount, you can NOT deduct up to the $5,000, the whole amount would be capitalized

Question 24

De Minimis Rule. If two requirements aren’t met, what is the maximum amount allowed to be expensed for federal tax purposes?

Answer 24

$2,500 per asset (after Jan 1, 2016)

Question 25

There is a safe harbor for routine ?

Answer 25

Maintenance

Question 26

Qualifying small taxpayers (gross receipts of $10 million or less) can expense costs related to an eligible building (unadjusted basis that does not exceed $1 million) if they do NOT exceed the lesser of ?

Answer 26

1) 2% of unadjusted basis

2) $10,000