Property Taxation Flashcards
Section 1231
Depreciation Recapture
used against capital losses
Ways to Offset Property Sale
Losses (WRAP)
W - wash sale losses
R - related party transactions
A - and
P - personal losses
Property Losses
Wash Sale Losses
When security is sold for a loss and repurchased within 30 days before or after sale date
Basis = purchase price of new security + disallowed loss
Property Losses
Related Party Transactions
Not considered “arms-length” and therefore disallowed
Property Losses
Personal Loss
Nothing allowed
Itemized deduction may be allowed in category of causality and theft
1040
Schedule D
Capital Gains and Losses
Basis for Purchased Property
Cost + Capital Improvements
holding period = purchase date`
Basis for Gifted Property
NBV
“Donors Roll-Over Cost”
depreciation lower of FMV and NBV
Gifted Property Basis Exemption
NBV value unless…
FMV < Rollover Basis
depends on future sale of asset
1 - if sold > NBV = use NBV for gain
2 - if sold < NBV = use FMV for loss
3 - if sold between NBV and FMV = no gain/loss
Basis of Inherited Property
Step up (down) to FMV Date of Death FMV
exception = alternate valuation date
earlier of:
1 - date distributed
2 - max 6 months after death
Property De Minimus Rule
Capitalization policy must be written for non-tax purposes:
- prop. under $_ will be expensed
- prop. useful < 12 months will be expensed
Max allowed for tax is $5k if written, $2.5k if not
MACRS
Modified Accelerated Cost Recovery System
Used for majority of federal tax depreciation expense
MACRS Rules
machinery and equipment
Salvage value ignored
Half year convention = in year you buy/sell it
Mid quarter convention = if bottom heavy w/ 40% in Q4
MACRS
Real Property Rules
- Salvage value ignored
- No land cost / building only
- Residential property = 27.5 SL depreciation
- Nonresidential property = 39 SL depreciation
Mid month convention = 1/2 month when placed in service
Property Gain
Treasury and Capital Stock Transactions
Never realize acquisition of own stock
Property Gain
Installment Sale
Taxed when cash payments are received
Property Gain
Exchange of like-kind (business) property
Not excludable for “things on paper”: (remote) inventory, stock, securities, partnership interests, goodwill, property in other countries
Replacement ID’ed within 45 days
Received within 180 days or tax return filed
Exchange of like-kind (business) property
Real Property
Does not have to be the same “general” use
Exchange of like-kind (business) property
Personal Property
Must be same “general” use
Property Gain
Divorce Property Settlement (basis)
Basis = NBV = nontaxable
Property Gain
Involuntary Conversions
Must receive insurance proceeds into similar property
Excess = taxable loot
Reinvest within 2 years / 3 years for business property
Property Gain
Homeowners Exclusion
Principle residence for 2+ years during 5 prior to sale
$500k to married couples
$250k for singles
non-qualified use for attempt to sell or rental property
Ways to Offset Property Sale Gain
HIDEIT
H - homeowners exclusion I - involuntary conversions D - divorce settlements E - exchange of like-kind (business) property I - installment sale T - treasury capital and stock
Calculating Gain / Loss at Disposition
Amount Realized
- Adjusted Basis of asset sold
= Gain or Loss
Section 1231 Gains
Determined by either 1245 or 1250
1245 Gains
Machinery and Equipment (over 12 months)
lesser of - gain recognized or all acc. dep.
is recaptured as ordinary income
any remaining gain is 1231 gain
1250 Gains
Real properties (over 12 months)
recaptures only dep. over SL
1231 Loss
Treated as ordinary loss (not capital)
MACRS Personal Property
Anything other than Real Property
3/5/7/10 yr = depreciate using 200% declining balance
15/20 yr = depreciate using 150% declining balance
MACRS Conventions
Machinery and Equipment
- half-year
- mid-quarter
Real Estate
- mid-month
After-Tax Cash Flows Formula
Earnings after tax
+ Amortization
+ Depletion
+ Depreciation
= After-Tax Cash Flow
Amount REALIZED
Prop received (FV) \+ cash/boot received - cash/boot paid \+/- NET reduction of debt - basis in existing prop
Amount RECOGNIZED
Lesser of
- amount realized
- boot received
Amount for BASIS in new prop
Basis of existing
+ boot paid
- boot received
+ gain recognized
