More Tax

Question 1

Section 267 Related Persons

Answer 1

1. Spouse
2. Child
3. Grandchild
4. Parent
5. Sibling
6. Related entities: if the taxpayer owns more than 50% of the stock (corp) or interests (LLCs/partnerships)

Question 2

At-risk rule

Answer 2

taxpayer can only deduct losses to the extent that there is enough basis (or the amount at-risk)

Question 3

Passive loss treatment

Answer 3

Only to the extent of passive income

Question 4

RE Active Participation Deduction

Answer 4

Up to $25,000

Question 5

Requirements for RE Active Participation

Answer 5

1. 10%+ ownership AND
2. Substantial involvement in managing the property

Question 6

Personal use property

Answer 6

rented 14 days or less

Question 7

Rental use property

Answer 7

Used for personal use less than (larger of):
1. 14 days OR
2. 10% of the # of days rented

Question 8

Mixed-use property

Answer 8

1. not able to meet the minimum personal use requirements
2. not able to meet the maximum personal use requirements to be a rental

Question 9

Deductions for personal use RE

Answer 9

Itemized deductions:
Mortgage interest and property taxes (Primary/secondary)

Question 10

Deductions for rental use RE

Answer 10

1. Trips made to property for maintenance and repair
2. All expenses
3. Passive losses ($25,000 limit)

Question 11

Deductions for mixed-use RE

Answer 11

1. Gross rental income is the limit (may be $0 but not negative)
2. Unused losses carried forward but subject to net income rule

Question 12

IRC Section 121

Answer 12

allows for the exclusion of gains on the sale of a personal residence for up to $250k (single) or $500k (MFJ)

Question 13

Requirements for Section 121

Answer 13

1. Ownership Test: owned the property 2 of the last 5 years (one owner)
2. Usage Test: must have used the property as the personal residence for 2 of the last 5 years (both spouses/US)

Question 14

Acceptable reasons for a reduced section 121 exclusion

Answer 14

1. Job relocation
2. Employment change
3. Qualifying for unemployment
4. Health issues
5. Divorce or legal separation
6. Birth of twins or other multiplies
7. Damage to home from disaster
8. Condemnation or seizure of the poetry
9. Other unforeseen circumstances

Question 15

Identify property that is not classified as a capital asset

Answer 15

Accounts or notes receivable acquired in the ordinary course of business
Copyrights: a literary, musical, or artistic composition; a letter, memo, or similar property created by the taxpayer
Inventory or property held primarily for sale to customers in the ordinary course of business
Depreciable property used in business (e.g. Section 1231)

Question 16

Best method for determining cost basis for tax planning

Answer 16

specific identification

Question 17

Tax rate on selling collectibles

Answer 17

28%

Question 18

IRS default method for determining cost basis

Answer 18

FIFO

Question 19

Short-term capital assets are taxed at

Answer 19

ordinary income rates

Question 20

Unrecaptured 1250 gains are taxed at

Answer 20

25%

Question 21

Capital loss limit per year

Answer 21

$3000 ($1500 for MJS), indefinite carry forward

Question 22

Section 1231 property

Answer 22

1. property used in business
2. property held for the production of income

Question 23

Benefit of Section 1231 property

Answer 23

1. Gains are taxed as capital gains
2. Losses are taxed as ordinary losses

Question 24

1245 property

Answer 24

“personalty” - stuff for business (furniture, computers, carpet, lighting, etc.)

Question 25

1250 property

Answer 25

"realty" - stuff for income (commercial buildings, warehouses, barns, rentals, etc.)

Question 26

Differentiate between section 1245 and 1250 property depreciation

Answer 26

Depreciation: 1245 - ordinary income 1250 - 25%

Question 27

Section 1031: Amount Realized

Answer 27

FMV received - net boot

Question 28

Section 1031: Realized Gain

Answer 28

Amount Realized - Basis received

Question 29

Section 1031: Recognized Gain

Answer 29

The lesser of realized gain or net boot received

Question 30

Section 1031: Deferred Gain

Answer 30

Realized Gain - Recognized Gain

Question 31

Section 1031: Substituted basis

Answer 31

FMV received - Deferred Gain

Question 32

Time requirements for Section 1031 exchange

Answer 32

Date of transfer to identify potential replacement property - 45 days Exchange completed - 180 days

Question 33

What Section 1031 does

Answer 33

Allows for deferral of gain or loss recognition on realty for realty exchanges (1231 property only)

Question 34

Boot

Answer 34

Non-qualifying property (cash, debt transfer, inventory, personalty, etc.)

Question 35

Section 1031 Property Types

Answer 35

Realty for realty

Question 36

Estimated Tax Q1

Answer 36

Jan 1 - Mar 31; Due Apr 15

Question 37

Estimated Tax Q2

Answer 37

Apr 1 - May 31; Due Jun 15

Question 38

Estimated Tax Q3

Answer 38

Jun 1 - Aug 31; Due Sep 15

Question 39

Estimated Tax Q4

Answer 39

Sep 1 - Dec 31; Due Jan 15

Question 40

Estimated Tax Formula

Answer 40

Lesser of: 1. 90% of Current Year 2. 100% of Prior Year (110% if AGI is > $150,000)

Question 41

Maximum SS taxable wage base

Answer 41

$168,600

Question 42

in a rising price environment, FIFO treatment will result in ___ profit

Answer 42

higher

Question 43

in a rising price environment, FIFO treatment will result in ___ tax liability

Answer 43

higher

Question 44

in a rising price environment, FIFO treatment will result in ___ inventory value

Answer 44

realistic

Question 45

in a rising price environment, LIFO treatment will result in ___ profit

Answer 45

lower

Question 46

in a rising price environment, LIFO treatment will result in ___ tax liability

Answer 46

lower

Question 47

in a rising price environment, LIFO treatment will result in ___ inventory value

Answer 47

understated

Question 48

in a falling price environment, LIFO treatment will result in ___ profit

Answer 48

higher

Question 49

in a falling price environment, LIFO treatment will result in ___ tax liability

Answer 49

higher

Question 50

in a falling price environment, LIFO treatment will result in ___ inventory value

Answer 50

overstated

Question 51

in a falling price environment, FIFO treatment will result in ___ profit

Answer 51

lower

Question 52

in a falling price environment, FIFO treatment will result in ___ tax liability

Answer 52

lower

Question 53

in a falling price environment, FIFO treatment will result in ___ inventory value

Answer 53

realistic

Question 54

useful life for cars

Answer 54

5 years

Question 55

useful life for computers

Answer 55

5 years

Question 56

useful life for heavy machines

Answer 56

7 years

Question 57

useful life for office furniture

Answer 57

7 years

Question 58

useful life for residential real estate

Answer 58

27.5 years

Question 59

useful life for non-residential (commercial) real estate

Answer 59

39 years