Property taxation

Question 1

5-Year Property:

7-Year Property:

Answer 1

5-Year Property: Computers, autos, trucks, machinery, and equipment
7-Year Property: Furniture and fixtures

Question 2

Half-Year Convention

Answer 2

Half-Year Convention:

One-half year’s depreciation in year of acquisition and one-half year’s depreciation in year of disposal

Question 3

Sec 179 limit: May elect to expense up to the limit for business-use new or used personal (not real) property per return (particularly subject to tinkering by Congress)

Answer 3

Year Maximum 2019 $1,000,000
Phase-out Threshold $2,500,000
Year

Cannot result in net operating loss (NOL)

Question 4

Real Property Categories

1. Residential Rental:
2. Non-residential: Straight-

Answer 4

Real Property Categories

1. Residential Rental: Straight-line over 27½ years
2. Non-residential: Straight-line over 39 years

Question 5

Real property

Mid-Month Convention:

Answer 5

Mid-Month Convention: One-half month’s depreciation in month of acquisition and one-half month’s depreciation in month of disposal

Question 6

NOT Capital Assets (MR CIA)

Answer 6

M Machinery and equipment used in business R Real estate used in business C Copyrights – in hands of original artist I Inventory A Accounts/notes receivable

Question 7

Section 1231 Assets:

Answer 7

Section 1231 Assets: Depreciable property and real estate used in business that were held more than one year before being sold

Question 8

Section 1245:

Section 1250:

Answer 8

Section 1245:personal property

Section 1250:real property

Question 9

Intangible assets amortization

Answer 9

180 months

Question 10

Capital loss
Individual:
Corp:

Answer 10

Capital loss
Individual:Deduct up to $3,000 loss on business-use or investment property in the current year and carry forward the remaining indefinitely
No losses allowed on personal-use property

Corp: (capital losses only offset capital gains) Carry back 3 years and forward 5 years

Question 11

Gift Donee’s basis:

1. basisFMV

Answer 11

Gift Donee’s basis:
1. basisFMV
magic hands!
in between>No gain/loss

Question 12

Inheritances

Donee’s basis:FMV of

Answer 12

Donee’s basis:FMV of

1. date of death
2. if AVD is chosen, then use FMV 6 months after date of death
3. If AVD is chosen and property is distributed within 6 months, then use FMV on date of distribution

Question 13

Like kind exchange

Answer 13

Personal to personal,
real estate to real estate

basis of old asset
boot paid
(boot received)
taxable gain recognized (financial gain)

Question 14

A:
Building FMV 500,000
Mortgage 100,000
Basis 300,000

B:
Building FMV 400,000
Basis 250,000

Answer 14

FMV of building received by A $400,000 
Debt relief (mortgage relief) 100,000 
Total consideration $500,000 
Basis of the old asset (300,000) 
A's gain indicated $200,000

Gain recognized is the lower of indicated gain ($200,000) or boot received ($100,000). Thus, the recognized (taxable) gain is $100,000.

Question 15

A:
Building FMV 500,000
Mortgage 100,000
Basis 300,000

B:
Building FMV 400,000
Basis 250,000

Answer 15

Basis of old asset $300,000 Boot paid 0
Boot received (debt relief) (100,000)
Gain taxed 100,000
A’s basis in new asset $300,000

Question 16

related party (family members, 50% > shareholder/partner)transaction

Answer 16

Gift basis rule is applied!

Question 17

Involuntary conversions

Answer 17

Gain deferred, if replacement property is purchased by 12/31 of third year that the gain is realized

Question 18

Stock Dividends:

Answer 18

Stock Dividends: Generally not taxable, unless cash option

Question 19

Estate Taxes

1.Transfer tax(once)

Answer 19

Due 9 months after death, 9-month extension available

Question 20

Estate Taxes

2. Income tax (annually)

Answer 20

Form 1041, U.S. Income Tax Return for Estates and Trusts

income earned from a going concern

Question 21

Gross Estate

Answer 21

Fair market value of all world-wide property

Life insurance proceeds

Question 22

Gifts must be present interest

Answer 22

Incomplete gifts or gifts of future interest do not qualify for exclusion (14,000USD)

Question 23

Doesn’t have to deduct Y1 dep exp from

Answer 23

MACRS basis when to calculate Y2 dep

Question 24

Gift tax is applied to

Answer 24

the FMV of the gift of the date of transfer.

but the basis of gift is carryover from donor!

Question 25

donee’s basis is donor’s basis.
and when donor paid gift tax,
the gift tax * appreciated rate = donee’s basis!

Answer 25

The donor had a basis of $10,000 and FMV of $50,000 at time of gift.
The donor paid gift tax of $5,000. Later, the donee sells the gift for $100,000.

Appreciation of $40,000 / Basis of $50,000 = 80%
80% × $5,000 tax = $4,000 adjustment
Sale $100,000
Adjusted Basis ($10,000 + $4,000) (14,000)
Donee Gain $ 86,000

Question 26

On August 1, Graham purchased and placed into service an office building costing $264,000, including
$30,000 for the land. What was Graham’s MACRS deduction for the office building in that year?

Answer 26

2,250 USD

264,000-3,000(no dep on land) / 39 * 4.5/12 = 2,250

buildingは月初で買っていても、mid month convention なので注意!

Question 27

A taxpayer had an investment in real estate with an adjusted basis of $125,000, subject to a mortgage
of $75,000. When the property had a value of $375,000, it was exchanged for another parcel of land,
which the taxpayer is similarly holding for investment. The other party is assuming the $75,000 mortgage
in the exchange. The land acquired has a fair value of $260,000 and is subject to a mortgage of $40,000,
which the taxpayer is assuming. In addition, the taxpayer is receiving a recreational vehicle with a fair
value of $30,000, and $50,000 in cash.
How much gain, if any, should the taxpayer recognize on the exchange, and what will be the basis in the
new property?

Answer 27

Dr: New property basis 125,000
COD 75,000
vehicle received 30,000
cash 50,000
TOTAL 280,000

Cr: old property basis 125,000
mortgage on new property 40,000

   Gain recognized should be 280,000-165,000=115,000

Question 28

machine

equipment

Answer 28

sec 1245

Question 29

In laws
uncle nephew
ancestors

Answer 29

are NOT related party!

Devalue property sales to related party>magic hands!

Question 30

A taxpayer had an investment in real estate with an adjusted basis of $125,000, subject to a mortgage
of $75,000. When the property had a value of $375,000, it was exchanged for another parcel of land,
which the taxpayer is similarly holding for investment. The other party is assuming the $75,000 mortgage
in the exchange. The land acquired has a fair value of $260,000 and is subject to a mortgage of $40,000,
which the taxpayer is assuming. In addition, the taxpayer is receiving a recreational vehicle with a fair
value of $30,000, and $50,000 in cash.

Answer 30

Gain recognized $115,000 Basis for real estate$125,000

new basis 125,000
cash 50,000
car 30,000
COD 75,000
TTL:155,000

old basis 125,000
old mortgage 40,000
Gain 115,000

Question 31

appreciated property, basis

Answer 31

depreciated property, use magic hands!

Question 32

private company sec 1244 stock > ordinary income.

Answer 32

depreciable personal’real property used in business>sec 1231 asset

Question 33

capitalize cost

OK>shipping cost, transit insurance, sales tax

Answer 33

NO>Warranty cost