PROPERTY TAX TRANSACTIONS Flashcards
3 categories of assets in business
- Ordinary - inventory, A/R, N/R
- Sec 1231 - depreciable property used in trade or business that have been owned for more than 1 year (realty or depreciable)
- Capital assets - other than what is listed under 1231, property held for investment or personal use
Realized gain and formula
Whenever asset is sold/disposed of, calculate realized gain
amount realized - adjuted basis
AB = cost plus any improvements less depreciation/amortization plus liabilities or expenses connected with acquisition
Amount realized
+ Cash received
+ FV of property or services received
+ liabilities ASSUMED
- selling expenses
What is included in basis besides the original cost?
- transportation
- installation
- testing
- taxes
What happens when property is received as a gift?
Determien:
Gain basis - adjusted basis of the donor, depreciable basis
or
Loss basis - lower of FMV at date of gift OR AB
if amount realized is between gain and loss basis = 0
Adjustment for Gift Taxes Paid for basis
adjustment =
[unrealized appreciation / (FMV date of gift - Annual Exclusion)] * Gift Tax Paid
What is the basis rules for inheritance?
FMV at date of death
OR
Alternate valuation = 6 months after date of death
What is the holding period for gifts and inheritances?
Gifts - if gain = period carries over
if loss = period does not carry over
Inheritance - always long-term
5 main concerns when there is a property transaction
- Realized gain or loss
- Recognized gain or loss (what goes on return)
- Character of gain or loss
- Holding period
- Basis
How are capital gains and losses treated for individuals?
Losses are limited up to $3,000
Gains are taxed as ordinary income.
Gains taxed at 15% if tax rate is 15% or lower
if in the 39.6% bracket, taxed at 20%
3.8% surcharge for MFJ MAGI > $250,000
Single MAGI > $200,000
How are capital gains and losses treated for corporations?
- losses can only be used to offset capital gains
- cannot create NOL or taxable loss
- carried back 3 years an carried forward 5 years
Trade date vs Settlement date
TD = day purchase/sale occurs SD = day the stock is delivered or payment is actually made
Sec 1244 Losses
First $50,000 (Single; $100,000 MFJ) = ordinary loss
remaining = capital
individual selling must be the original holder
2 types of recapture under Sec 1231
1245 - gains on PERSONALTY as ordinary income up to amount of A/D
SP = 200
Cost = 150; A/D (50) = basis = 100
A/D = 50 (ordinary income)
200 - 150 - 50 = 50 (1231 gain)
Amount realized - AB (cost - a/d) = realized gain
realized gain - a/d = 1231 gain
1250 - recapture of A/D on REALTY (building) in excess of straight line taken as ordinary income
1231 Netting - how are gains and losses treated?
Net Gain = LTCG
Net Loss = ordinary loss
