Property Taxation

Question 1

What is the basis of the gift property to calculate the gain/loss from the sale of the donated property?

Answer 1

To determine the basis of the gift property to calculate the gain/loss (in general, property acquired as a gift retains the cost basis in the hands of the donor. However, if:

(1) FMV<NBV==> Yes (if the FMV>NBV, then use the NBV as the basis

(2) SP>NBV==>Yes, basis is NBV then recognized gain; if NO ask the next question

(2) SP<FMV==>Yes, basis is FMV then recognize loss, if NO, then

(3) SP < NBV but SP>FMV==> No gain or loss

Question 2

Are estate taxes included in the basis of the inherited property?

Answer 2

No. Estate taxes paid on inherited property never affect the beneficiary’s basis of inherited property.

Question 3

What is De Minimis Safe Harbor Rule?

Answer 3

*If the Company does not have an applicable financial statements (AFS, ie audited financial statements), the Company can expense items costing up to $2,500 each.

*If the Company does have an applicable financial statements (AFS, ie audited financial statements), the Company can expense items (long lived assets) costing up to $5,000 each.

Question 4

What is the tax basis for depreciation of the property converted from personal use to business use?

Answer 4

The lesser of:
- original cost basis, as adjusted for any improvements to the property; or
- the fair market value (FMV) of the property on the date of conversion.

Question 5

What is the tax basis for gain/loss purposes of the property converted from personal use to business use?

Answer 5

Compare the Selling Price to the NBV. If the Selling Price is less than the NBV resulting to a loss, then perform below:
Depreciable basis of property converted from personal use to business use is the LESSER of:
(1) the original cost basis, as adjusted for any improvements to the property; or
(2) the FMV of the property on the date of conversion

If the selling price is more than the NBV resulting to a gain, then use the adjusted basis (ie Acquisition cost less depreciation).

Question 6

What is the capital loss deduction limit?

Answer 6

Limited to $3,000 per year, excess is carried forward indefinitely.

Question 7

What is the treatment of the gain/loss on the sale of personal-use assets?

Answer 7

GAIN is TAXABLE
LOSS is NONDEDUCTABLE

Question 8

What is the treatment of the loss on abandonment of a personal-use assets (eg principal residence)?

Answer 8

NO DEDUCTION is allowed for the loss on disposal of a personal-use assets.

Question 9

What is the treatment of the gain/loss on the sale of business-use assets?

Answer 9

GAIN is TAXABLE
LOSS is DEDUCTABLE

Question 10

What are considered capital assets?

Answer 10

*Personal-use assets
*Investment assets that are NOT inventory.

*Real property NOT used in a trade or business
*Option held by an investor

Question 11

Is a short sale of stock a capital asset sale? What is the holding period?

Answer 11

*Short sale of stock is a capital asset sale.

*Holding period of short sale depends on when it was EXECUTED and NOT when the stock is delivered.

Question 12

When is the nonbusiness bad debt treated as a capital loss? What is the holding period?

Answer 12

*Nonbusiness bad debt MUST BE TOTALLY worthless to be deductible?

*Nonbusiness bad debt is treated as SHORT-TERM capital loss on the date that the debt becomes TOTALLY worthless.

Question 13

What are the capital gain and loss rules for Individuals and C Corporations?

Answer 13

*Individual capital losses
Offset Income or Gains - maximum limit of $3,000
Excess capital losses carryforward indefinitely.

*Corporate capital losses
- Capital losses can only be deducted up to the extent of capital gains
- carryback 3 years, carryforwad 5 years

Question 14

What is Section 179 deduction?

Answer 14

Section 179 deduction allows assets purchased to be expensed on the acquisition date up to $1,220,00 reduced dollar for dollar by the amount of property placed in service during taxable year that exceeds $3,050,000 limit.

Question 15

What are qualified properties under Section 179 deduction?

Answer 15

*property MUST be TANGIBLE personal property or QUALIFIED REAL property IMPROVEMENTS (such as roofs, heating, air conditioning, and security systems)
*purchased from UNrelated party
*use in ACTIVE conduct of a TRADE or BUSINESS (used more than 50% of the time in business)

Question 16

What are MACRS deductions?

Answer 16

Question 17

How do you calculate the depreciation assuming Section 179 expense, Bonus depreciation?

Answer 17

1. Determine the asset eligible for SEC 179 deduction and bonus deduction. These are personal property and Qualified real property (roofs, heating, air conditioning, and security systems).
2. Calculate the Section 179 deduction (note on $1,220,000 reduced dollar for dollar by the amount of property placed in service during taxable year that exceeds $3,050,000 limit. (see Section 179 deduction in Step 5)
3. Calculate the bonus depreciation (60%) on personal property and Qualified real property. The depreciation basis used is after deducting the SEC 179 deduction from step 2.
4. Calculate the MACRS depreciation. The depreciation basis used is after deducting the SEC 179 deduction from step 2, and bonus depreciation after bonus depreciation from step 3.
5. Determine the Section 179 deduction limit for the year because the Section 179 deduction should not result to a taxable loss after deducting bonus depreciation, MACRS and Section 179 (in this order). Any unallowable Sec 179 deduction is carried over indefinitely.