Property Taxation

Question 1

Sales to Related Parties

Answer 1

Can’t take a loss on a sale of property to a related party
(Does NOT Include In-Laws who may be out-laws one day). Your loss rolls forward to the buyer, he adds it to his basis if he sells it for more than the original owners basis. For Example:

Stock w. a basis of $20,000 sold to your brother
He purchased it for $16,000
You get 0 Loss. His basis is $16,000 PLUS your disallowed loss of $4,000 = $20,000
If he sells it for $21,000 he has a $1,000 gain.

Question 2

Sales to Related Parties (In Between Rule nets Zero)

Answer 2

Sam Sells Above——-Use David’s basis for Gain

David Jr’s Original Basis ______30,000______

       Sam Sells Between ---ZERO GAIN OR LOSS

Sam’s Lower Purch Price _____20,000_______

   Sam Sells Below 20K-Use Sam's Price(Basis) for Loss

Question 3

Gain on Sale of Personal Residence

Answer 3

A Gain is not taxed if the taxpayer can “HIDE IT”

(H) Home Owner Exclusion ($250,000/$500,000 S/MJ)
( I ) Involuntary Conversion (as long as all is reinvested)
(D) Divorce Property Settlement not taxable
(E) Exchange of Like-Kind-Business/Investment Prop.
( I ) Installment Sale (Recognize as cash is received)
(T ) Treasury & Cap Stock Trans’s (FOR A CORPORATION - Sale,Repurch,Reissue) Indiv is taxed!

Question 4

Non-Deductible Losses (WRaP up these losses-throw away)

Answer 4

WRaP (a=buy a vowel to make it work as a word)

W) Wash Sales(Repurchase 30/30 before or after
(R ) Related Party Transactions
(P ) Personal Loss

Question 5

Individual Net Capital Gain/Loss Rules

Answer 5

Long-term - MORE than 1 year (Tax rate 20% maximum)
Short-term - ONE year or LESS (Treated as ord. income)
Unrecaptured Sec 1250 gain 25%

Question 6

Gifted Property Gains/Losses (IF FMV IS LOWER AT GIFT DATE THAN DONOR’S BASIS)

Answer 6

Grandma gives kid her car she paid $10,000 for:

  Kid Sells Above-------Use Grandma's basis (assumes donor's holding period)

Grandmas Original Basis ______10,000 _______

 Kid Sells Between ---ZERO GAIN OR LOSS

FMV at date of Gift __6,000__

Kid Sells Below -----Use FMV as basis (New holding period starting at date of gift)

Question 7

Section 1231 Property

Answer 7

Business Used Mach & Equipment, Land & Bldgs

Question 8

Real property definition is

Answer 8

Land and everything permanently attached to it

Question 9

Netting Procedures for Short-Term Capital Gains & Losses

Answer 9

Short-term Capital Losses (including carryovers) are Netted in this Order:

1) Short-term Capital Gains
2) Long-term Capital Losses from collectibles (28%)
3) Long-term Capital Gains from Unrecaptured Sec 1250 gains (25%)
4) Long-term Capital Gains taxed @ lower rates(15-20%)

Question 10

Netting Procedures for Long-Term Capital Gains&Losses

Answer 10

Long-term Capital Losses (Including Carryovers) are Netted in this Order:

1) Net against long-term Capital Gains in the order of Highest Tax Rate first

Question 11

Capital Assets Are:

Answer 11

Capital assets include property (real and personal) held by the taxpayer for investment, such as:

• Personal automobile of the taxpayer
• Furniture and fixtures in the home of the taxpayer
• Stocks and securities of all types (except those held by dealers)
• Personal property of a taxpayer not used in a trade or business
• Real property not used in a trade or business
• Interest in a partnership
• Goodwill of a corporation
• Copyrights, literary, musical, or artistic compositions purchased
• Other assets held for investment

Question 12

Realized vs. Recognized

Answer 12

Recognized = Amt you are taxed on
Realized = What you gained 

These are not always the same.

Question 13

In a Like-Kind-Exchange

Answer 13

You recognize (get taxed on) the LESSER of:

Gain realized OR the amount of boot received
Note: Realized loss is never recognized in like-kind exchanges.

Question 14

In a Like-Kind-Exchange Gain Realized Formula

Answer 14

FMV of Asset Received
+ Any Boot Received
- Less Basis of Property Traded
=Gain Realized

Question 15

In a Like-Kind-Exchange Gain New Basis Formula

Answer 15

Adjusted Basis of Property Given up
+ Gain Recognized
- Boot Received
= Basis of New Property

Question 16

Inherited property is always considered Long Term or Short Term?

Answer 16

Long Term (no matter when the decedent purchased it)

Question 17

Personal Property What it is & how are gains treated?

Answer 17

Personal Property is all property NOT classified as real property.

Gains from sales of personal property are Sec 1245 prop and are ordinary.

Question 18

Code Sec 1245 Property Gains are computed as follows:

Answer 18

Ordinary income is recognized on the gain to the extent of the accumulated depreciation. Any gain in excess of the original cost is capital gain.

Question 19

MACRS 5 Year Property 200%

Answer 19

Automobiles
Light Trucks
Computers
Office Equipment (typewriters, copiers, duplicating eq)

Question 20

MACRS 7 Year Property 200%

Answer 20

Office furniture & fixtures

Equipment

Question 21

MACRS - 27.5 Years Straight Line

Answer 21

Residential Rental Property (House, Apt, Duplex)

Question 22

MACRS - 39 Years Straight Line

Answer 22

Nonresidential Real Property (Office bldgs., Warehouses)