M1 Basis and Holding Period of Assets Flashcards
Three types of property
1) Purchased Property
2) Gifted Property
3) Inherited Property
What is the basis of purchased property?
Cost + Capital improvements
Purchased Property. Defined as land and all items permanently affixed to the land
REAL Property (Land and buildings)
Purchased Property. Defined as all property not classified as real property.
Personal Property (equipment)
Purchased property holding period
Purchase Date
Purchased property reduced basis? (Calculation of adjusted basis)
NBV*
= Cost - Accumulated Depreciation
What is the basis of GIFTED property?
Rollover basis / NBV / Adjusted basis
Gifted property. What is the EXCEPTION to the basis rule (basis is usually the NBV/rollover from the donor)?
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
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?
Difference between the sale price and the rollover basis
*SET UP:
COST = ___
FMV = ___
Then see where sales price falls
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?
FMV
Loss is the difference between the FMV and the sales price
*SET UP:
COST = ___
FMV = ___
Then see where sales price falls
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?
NONE
*SET UP:
COST = ___
FMV = ___
Then see where sales price falls
Gifted Property. What is the basis of gifted property for the purposes of depreciation?
LOWER of:
1) donor’s adjusted basis at date of gift OR
2) FMV at date of gift
Gift property holding period? (EXCEPT WHEN…)
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
Inherited property. General rule for the basis?
FMV at the date of death
Inherited property. Alternative valuation date to the general rule.
Earlier of six months later or date of distribution/sale
*If validly elected
So MAX is 6 months
Inherited property holding period
LONG-TERM (“long journey out of the grave”)
Capitalize or Expense. General rule is all tangible property that is not ___ must be capitalized.
NOT inventory
*materials and supplies are expensed (less than $200 or economic lift less than 12 months)
Capitalize or Expense - amounts paid to acquire or produce property?
Capitalized
Capitalize or Expense - Improvements
Capitalized
Capitalize or Expense - Intangible property
Capitalized
What is the holding period for intangible property?
Starts the date the asset is completed
In order to expense certain items (de minimis rule), what two things are required?
1) Capitalization policy must be WRITTEN
2) Applicable financial statement
De Minimis Rule. What is the maximum amount allowed for federal tax purposes (expensed)?
$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
De Minimis Rule. If two requirements aren’t met, what is the maximum amount allowed to be expensed for federal tax purposes?
$2,500 per asset (after Jan 1, 2016)
There is a safe harbor for routine ?
Maintenance
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 ?
1) 2% of unadjusted basis
2) $10,000
