Property taxation Flashcards
Property taxation
5-Year Property:
7-Year Property:
5-Year Property: Computers, autos, trucks, machinery, and equipment
7-Year Property: Furniture and fixtures
Half-Year Convention
Half-Year Convention:
One-half year’s depreciation in year of acquisition and one-half year’s depreciation in year of disposal
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)
Year Maximum 2019 $1,000,000
Phase-out Threshold $2,500,000
Year
Cannot result in net operating loss (NOL)
Real Property Categories
- Residential Rental:
- Non-residential: Straight-
Real Property Categories
- Residential Rental: Straight-line over 27½ years
- Non-residential: Straight-line over 39 years
Real property
Mid-Month Convention:
Mid-Month Convention: One-half month’s depreciation in month of acquisition and one-half month’s depreciation in month of disposal
NOT Capital Assets (MR CIA)
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
Section 1231 Assets:
Section 1231 Assets: Depreciable property and real estate used in business that were held more than one year before being sold
Section 1245:
Section 1250:
Section 1245:personal property
Section 1250:real property
Intangible assets amortization
180 months
Capital loss
Individual:
Corp:
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
Gift Donee’s basis:
1. basisFMV
Gift Donee’s basis:
1. basisFMV
magic hands!
in between>No gain/loss
Inheritances
Donee’s basis:FMV of
Donee’s basis:FMV of
- date of death
- if AVD is chosen, then use FMV 6 months after date of death
- If AVD is chosen and property is distributed within 6 months, then use FMV on date of distribution
Like kind exchange
Personal to personal,
real estate to real estate
basis of old asset
boot paid
(boot received)
taxable gain recognized (financial gain)
A:
Building FMV 500,000
Mortgage 100,000
Basis 300,000
B:
Building FMV 400,000
Basis 250,000
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.
A:
Building FMV 500,000
Mortgage 100,000
Basis 300,000
B:
Building FMV 400,000
Basis 250,000
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
related party (family members, 50% > shareholder/partner)transaction
Gift basis rule is applied!
Involuntary conversions
Gain deferred, if replacement property is purchased by 12/31 of third year that the gain is realized
Stock Dividends:
Stock Dividends: Generally not taxable, unless cash option
Estate Taxes
1.Transfer tax(once)
Due 9 months after death, 9-month extension available
Estate Taxes
2. Income tax (annually)
Form 1041, U.S. Income Tax Return for Estates and Trusts
income earned from a going concern
Gross Estate
Fair market value of all world-wide property
Life insurance proceeds
Gifts must be present interest
Incomplete gifts or gifts of future interest do not qualify for exclusion (14,000USD)
Doesn’t have to deduct Y1 dep exp from
MACRS basis when to calculate Y2 dep
Gift tax is applied to
the FMV of the gift of the date of transfer.
but the basis of gift is carryover from donor!
donee’s basis is donor’s basis.
and when donor paid gift tax,
the gift tax * appreciated rate = donee’s basis!
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
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?
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!
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?
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
machine
equipment
sec 1245
In laws
uncle nephew
ancestors
are NOT related party!
Devalue property sales to related party>magic hands!
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.
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
appreciated property, basis
depreciated property, use magic hands!
private company sec 1244 stock > ordinary income.
depreciable personal’real property used in business>sec 1231 asset
capitalize cost
OK>shipping cost, transit insurance, sales tax
NO>Warranty cost
