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
Sec 1231 lookback provision
1231 gains must be offset by 1231 losses going back 5 years that have not be recaptured. Gains that have been absorbed the losses = ordinary income anything remaining is a LTCG
Cost Recovery
200% and 150% for personalty - mid year convention; half-year
straight-line for realty - mid-month convention; half-month
Under cost recovery, if asset is the following:
personal 25%
investment 30%
business 45%
what method can be used to depreciate, and what percentage
business use test 50% failed - must use straight-line
but can include investment
total = 75% straight-line
General rule for like-kind exchange
no gain or loss is recognized unless boot is received
boot = cash or other nonqualifying property, debt relief
Involuntary conversion
casualty, theft, condemnation (taken by govt)
deferral may be elected and reinvested within reasonable time
How much may taxpayers exclude if they calculate a gain on the sale of their principal residence?
$250,000 single
$500,000 MFJ
must live in the home for at least 2 years
Wash sale
losses not recognized if similar securities and same number of them are purchased within 30 days
Installment sale formula
gross profit = sale price - cogs (basis of asset)
recognized income = cash collected * (gp/contract price)
