Property Tax

Question 1

What is considered adaptation

Answer 1

It is when property is used for a new or different use that originally intended

Example - converting a machine for another purpose

CAPITALIZE costs

Question 2

What is betterment

Answer 2

This is when you make something bigger, better or faster

CAPITALIZE costs

Question 3

What is restoration

Answer 3

Restore something to its original basis by replacing or fixing major parts

CAPITALIZE costs

Question 4

What are capital assets

Answer 4

This is all property held by a taxpayer

Question 5

What are a canvas portrait of a client in the hands of the painter considered

Answer 5

inventory - ordinary asset

Question 6

What are depreciable fixtures in a business parking lot

Answer 6

depreciable property used in business and real estate

Question 7

What is accounts and notes receivable arising from sales or services; copyrights, literary, musical, or artistic compositions; or treasury stock.

Answer 7

property used in business 1231 Asset

Question 8

for related party transactions - what defines constructive ownership

Answer 8

Include is an individuals family

sibling
parents
spouse
kids

Question 9

What are the 1231 rules

Answer 9

If 1231 is held for LESS than 1 year

BOTH gain and losses are ordinary

If 1231 is held for MORE than 1 year

LOSS - is ordinary
GAIN - is capital Gain that goes to schedule D

Question 10

What is the special rule for listed securities for cash based tax payers

Answer 10

For securities gains and losses will be realized on the trade date on a year end sale of listed stocks

Question 11

What is a like kind exchange

Answer 11

This is said to have occurred when property used in a trade or business or held as an invested is exchanged for other property of the same type

Example - real property

a vacant lost for a corporate office building

This is a non-taxable event

Question 12

can you exchange inventory in a like kind exchange

Answer 12

no

Question 13

can you exchange stocks, bonds, notes, convertible securities as a like kind exchange

Answer 13

no - securities are specifically excluded

Question 14

can you exchange partnership interest in a like kind exchange

Answer 14

no

Question 15

can you exchange property held for personal use in a like kind exchange

Answer 15

NO

Question 16

Can you exchange an apartment building for unimproved land in a like kind exchange

Answer 16

YES
they are considered the same class of property

Question 17

What is the rule about selling a house that is your primary residence

Answer 17

single 250 MFJ 500

Must use it as you primary residence for 2 of the last 5 years

It you have to sell sooner that that because of a change in jobs or health etc - then this would apply as well

The result is that there would not be a any gain recognized

Question 18

Who is subject to the uniform capitalization rules

Answer 18

They apply to a taxpayer who makes real or tangible personal property used in trade or business

or for real or personal property, tangible an din tangible personal property acquired for resale if gross receipts are greater than 10 Million in last 3 tax years

Question 19

What are the UNICAP rules

Answer 19

you must capitalize direct costs and allocable portion of indirect costs that are part of the production or resale activity

These cost are capitalized into inventory

Question 20

What is the definition of a capital asset

Answer 20

ALL property held by the taxpayer except

Inventory
Depreciable property or real estate used in business
A/R or N/R
Copyrights
Artistic creations 
Treasury Stock

Question 21

What is inventory, A/R, artistic works, N/R considered

Answer 21

They are “hot Assets”

Ordinary Assets
Used in less than 1 year
Taxed at the ordinary tax rate

Question 22

What are marketable l securities considered

Answer 22

Capital Assets

Question 23

What is treasure stock considered

Answer 23

Ordinary Asset

Question 24

What is the qualified small business stock exclusion

Answer 24

If you are a non corporate shareholder go a qualified small business stock for at least 5 years

Then you can exclude any gain

ceiling GREATer of 10X basis or 10M minus previous exclusions

Question 25

what is section 1250 property

Answer 25

thi sis when you recapture depreciation on real property when you sell it as a gain.

You are basically allocating the gain from the sale to ordinary gain for the amount of execrated depreciation over S/L

The rest is reported as long term capital gains

Question 26

If a company has a capital loss how MUST it treat it

Answer 26

They are REQUIRED to carry the loss back three years and then carry the rest forward 5 years

It is not an option

Question 27

What is considered boot

Answer 27

This is the cash you get plus the debt you give up

100 cash 200debt they assume = 300 in total boot

Question 28

What is section 1244 stock

Answer 28

This is stock that that is for small US business where you can deduct 50K single up to 100K ordinary Loss Married for a loss

Question 29

What if you inherit 1244 stock

Answer 29

You can not take this deduction because you are not the original purchaser. So you loss would be considered a LT capital Loss

Question 30

IS A majority shareholder and a corporation considered related parties

Answer 30

YES

Question 31

IS a nephew or niece considered a related party

Answer 31

No

Question 32

How much capital loss can a HOH claim each year

Answer 32

3000

Question 33

How much capital loss can MFSeparate take each year

Answer 33

1500

Question 34

What is an option to purchase capital stock considered

Answer 34

It is a capital asset - if you let the option lapse and take a loss - it is considered a short term loss

Question 35

What is the de minimums 263 rule

Answer 35

You can expense the cost of an item or per invoice up to 5K
5,000 is the safe harbor amount

If property has useful lief of 12K or less ten is can be expensed as well

Question 36

What is section 1245

Answer 36

This is when depreciation perviously taken is recaptured in ordinary income when property is sold

It is the LESSER of

the gain realized or the depreciation taken

Question 37

If a security becomes worthless how do you treat it

Answer 37

When an investment security becomes worthless it is treated as if it is sold on the last day of the tax year in which it becomes worthless.