Property Tax: UNICAP and Special Property Tax Transactions

Question 1

What are the 8 types of Special Property Tax Transactions?

Answer 1

1. Wash Sales
2. Related Party Exchanges
3. Personal Losses
4. Home Owner’s Exclusion
5. Involuntary Conversion
6. Divorce Property Settlement
7. Like-Kind Exchanges
8. Installment sales

Question 2

Describe the tax treatment for each:

1. Wash Sales
2. Related Party Exchanges
3. Personal Asset Sales
4. Home Owner’s Exclusion

Answer 2

1. Losses disallowed/ Gains are taxable
2. Losses disallowed/ Gains are taxable. Once the related party subsequently sells it again, gains are taxable, losses are treated under dual-basis
3. Losses disallowed/ Gains are taxable
4. Gains are nontaxable up to 250K for Single filers, 500k for mfj

Question 3

Describe the tax treatment for each:

5. Involuntary Conversion
6. Divorce Property Settlement
7. Like-Kind Exchanges
8. Installment sales

Answer 3

5. Any proceeds not used to buy a replacement property within the time limit are taxable
6. Nontaxable
7. Losses disallowed/ Gains recognized to the extent of: Lesser of realized gain or boot received
8. The Gross profit Percentage of each installments payment is reported as a gain

Question 4

What are Wash Sales?

Answer 4

Wash Sales occur when assets are sold at a loss and repurchased within 30 days of the sale

Question 5

What is the tax treatment for losses from Wash Sales?

Answer 5

Losses from Wash Sales are not deductible

*The amount of the loss is added to the basis of the repurchased stock

Question 6

What is the tax treatment for gains from Wash Sales?

Answer 6

Gains from wash sales are fully taxable

Question 7

What is the difference between a 1031 exchange and a 1033 exchange?

Answer 7

Section 1031 = Like-kind exchanges (can only be real property under TCJA)

Section 1033 = Involuntary conversions

Question 8

What are the timing constraints for gain deferrals under Section 1033 exchange?

Answer 8

(Section 1033= involuntary conversion)

Gains may be deferred if the property is replaced within:

2 years - destruction or theft resulting in insurance recovery

3 years - Government condemnation or eminent domain award

4 years - Conversion in connection with a federally declared disaster

*The time limit is measured by calendar year. The actual date of replacement will always be December 31 in the year the proceeds are received.