Property Taxation Flashcards by Carla Torres

What is Real Property?

R4-3

–land and buildings, paving, etc.

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What is Personal Property?

R4-3

-all property not classified as real property

- -machinery, equipment, and automobiles

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What is the difference between Real vs Personal Property?

R4-3

Real:
–land and buildings

Personal:
–machinery, equipment, and automobiles

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What are Capital Assets?

R4-3

Real and Personal property, such as:

-personal & real property, car not used in business
-interest in a partnership
-assets held for investment
-goodwill
-purchased copyrights, musical, artistic composition

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What are NonCapital Assets?

R4-3

-Property included in inventory
-A/R from sale or service
-Section 1231 (business used Machinery & Equipment, land & building)
-Original Works: copyrights, musical or artistic compositions (artist’s inv)
-Treasury Stock

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Gain or Loss Calculation

What is the calculation?

R4-8

Amount Realized
-Adj basis of asset sold
=Gain or Loss

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Gain or Loss Calculation
How do you find Amount Realized?

R4-8

+cash received=boot
+buyer’s assumption of debt (excess=boot)
+FMV property/services received
-selling exp

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Gain or Loss Calculation
How do you find the Adjusted Basis of Asset Sold?

R4-8

Purchased property = cost
Gifted property = cost
Inherited property = step-up FMV

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Gain or Loss Calculation
What is the Adj Basis for Purchased property?

R4-8

Cost of property purchased
+Capital Improvements
-Accumulated Depreciation

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Gain or Loss Calculation
What is the Adj Basis for Gifted property?

R4-9

General Rule: donor’s rollover cost/NBV
–Exception: lower FMV at date of gift if selling at loss

Holding period = same as donor’s holding period

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Gain or Loss Calculation
What is the Adj Basis of Inherited property?

R4-11

General Rule: FMV at date of death

Alt Valuation Date: FMV earlier of
–distribution date of asset
or
–alt. valuation date

Holding Period: long-term

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Which Gains are not taxed (excluded or deferred)?

R4-13

Gains are not taxed if you can “HIDE IT” (mnemonic)

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Gains are not taxed if you can “HIDE IT” (mnemonic)

R4-13

H– Homeowner’s exclusion
I– Involuntary conversions
D– Divorce property settlement
E– Exchange of like-kind business/investment asset

I– Installment sale
T– Treasury and Capital stock transactions

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Which Losses are non-deductible?

R4-25

“WRaP” up these lossed bc they are non-deductible (mnemonic)

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Which Losses are “WRaP” up (non-deductible)?

R4-25

W– Wash Sale loss
R– Related Party transactions
A– and
P– Personal loss

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Gains

Homeowner’s Exclusion
“H” in “HIDE IT” mnemonic

R4-13

Sale of personal principal residence can exclude from tax up to:

-$250,000 (SS, MFS, HH)
-$500,000 (MFJ, Widower)

must own and live in house for 2 yrs

Gains

Involuntary Conversion
“I” in “HIDE IT” mnemonic

R4-15

-Insurance proceeds for destruction, theft, condemnation of property is not taxable if taxpayer reinvests.
-amount not reinvested, is taxable “boot”/loot
-reinvestment within:
- personal: 2yrs after yr-end
- business: 3 yrs after yr-end

Gains

Divorce Property Settlement
“D” in “HIDE IT” mnemonic

R4-16

–nontaxable event

basis to recipient = carryover basis

Gains

Exchange of Like-Kind Business/Investment
“E” in “HIDE IT” mnemonic

R4-17

-business trade-in or swapping real estate = not taxed
except: inv, stock, securities, partnership interests, real property in foreign country

–Gain when boot received

Gains

Installment Sale
“I” in “HIDE IT” mnemonic

R4-23

-rev recognize when cash is received
-TI = annual collection x gross profit %

GP= Sale-COGS
GP%= GP/Sale price
TI= cash collections x GP%

Gains

Treasury and Capital Stock transactions
“T” in “HIDE IT” mnemonic

R4-25

exempt from gain (loss disallowed)

-sale of stock by corp
-repurchase of stock by corp
-reissue of stock

Losses

Wash Sale loss
“W” in “WRaP” mnemonic

R4-25

-security (stock or bond) sold for a loss and repurchased within 30 days before or after date of sale
-loss disallowed

Losses

Related Party transactions
“R” in “WRaP” mnemonic

R4-26

-siblings, spouse
-lineal descendants (father, son, grandpa)
-entities 50%+ owned
-in-laws are not related parties

Gain = taxable (except spouse and 50% owned entities)
Loss = not allowed

Basis is same as gift tax rules

Losses

Personal loss
“P” in “WRaP” mnemonic

R4-27

–no deduction allowed for loss on non-business disposal or loss.

–itemized deduction available for casualty and loss

Individual CG(L) rules R4-27

Net CG rules - -L-T= 20%, 15%, 0% (> 1 yr) - -S-T= ordinary income (1 yr or less) Net C(L) rules - -$3,000 max deduction - -CB never; CF forever

Corporation CG(L) rules R4-29

Net CG - -no deduction for S-T and L-T - -CB 3; CF 5 as S-T C(L)

How are Losses treated? operating vs indiv C(L) vs corp C(L) R4-29

Operating loss: offset income; CB 2; CF 20 Indiv. C(L): $3k offset income; CB 0; CF forever Corp. C(L): no offset income; CB3; CF 5

MACRS Depreciation Property other than real estate (Machinery and Equipment) What are the methods of depreciation? R4-30

--salvage value ignored Half-year convention --if placed in service or disposed in mid of yr Mid-quarter convention --if >40% placed in service in last Q of yr

MACRS Depreciation Real Estate (building) What are the methods of depreciation? R4-30

Residential Rental property --27.5 yrs straight-line Non-residential rental property --39yrs straight-line Mid-Month Convention --half-month is taken for month placed in service or disposed of

Expense deduction in lieu of depreciation (machinery and equipment) R4-31

- -$500,000 limit - -reduced dollar for dollar if prop exceeds $2,010,000 - -no deduction if loss - -SUV exp up to $25,000

MACRS Depreciation machinery and equipment vs real estate R4-32

Machinery and Equipment - -half-year - -mid-quarter Real Estate --mid-month

MACRS depreciation What is the Half-year convention? R4-30

- -personal property placed in service or disposed of in middle of year - -midpoint of year is used - -for machinery and equipment

MACRS depreciation What is Mid-quarter convention? R4-30

- -if >40% of personal property is placed in service in the last quarter - -for machinery and equipment

MACRS depreciation What is Mid-month convention? R4-31

- -for real estate property - -half of the month is taken for the month placed in service or disposed of - -straight-line

MACRS depreciation For how many years is Residential rental property depreciated? R4-30

- -27.5 years - -straight-line - -half-month convention

MACRS depreciation For how many years is Non-Residential rental property depreciated? R4-31

- -39 years - -straight-line - -half-month convention

Depletion Tax vs GAAP R4-33

Tax: --percentage depletion (preference item for AMT) GAAP: --cost depletion (remaining basis/remaining units)

Percentage Depletion How much is deductible? R4-33

- -50% of TI is deductible | - -100% if oil and gas is deductible

Intangible Amortization Tax vs GAAP R4-33

Tax --15 year straight-line GAAP --impairment test- not amortized