Property Taxation

Question 1

how is the basis of property acquired calculated?

Answer 1

cash payment + related debt + additional cost incurred related to purchase (e.g., title insurance)

Question 2

what is the de minimis safe harbor rule?

Answer 2

businesses that have a policy of immediately expensing low-cost personal property items for financial accounting purposes are allowed to deduct up to a certain amount:

5,000 per item if TP has an applicable financial statement
2,500 per item if TP does not

*if cost of item is more than allowable amount ^ then entire cost must be capitalized

Question 3

are recipients of inherited property subject to income tax on the property (i.e., is the property value included in gross income)?

Answer 3

NO, but income or loss may result when the property is sold, which would be subject to tax

Question 4

what is the basis of inherited property to the beneficiary?

Answer 4

the FMV at the date of the person’s death (or the alternate valuation date, which is 6 months later)

Question 5

what if the alternate valuation date is elected, but the asset is sold or distributed before that date?

Answer 5

beneficiary’s basis is the FMV on the date of sale or distribution

Question 6

if someone sells a house for a gain, is any of that gain excludable from gross income?

Answer 6

YES, but only if following condition met:
the property was the TP’s primary residence for 2 of the last 5 years

250,000; 500,000 (married)

Question 7

on an exchange for like-kind property (real estate), how is the recognized gain determined?

Answer 7

the lesser of:
the gain realized
or
the net boot received (e.g., cash, relief from liabilities, non qualifying property)

Question 8

is any deduction allowed for the loss on disposal of a personal-use asset?

Answer 8

NO

Question 9

when there is a like-kind property exchange, how is the taxpayer’s basis in the property received calculated?

Answer 9

the adjusted basis of the old property + net boot paid (or minus net boot received) + gain recognized

Question 10

are losses ever recognized in like-kind exchanges?

Answer 10

NO

Question 11

what is the formula for calculating loss on involuntary conversion?

Answer 11

asset carrying amount
removal and clean up cost
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
basis of involuntary conversion
(insurance proceeds)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
loss on involuntary conversion

Question 12

what is a wash sale?

Answer 12

when a security is sold for a loss and is repurchased within 30 days before or after the sale date. Dealers in securities are excluded from wash sale rules.

Question 13

how is a loss on a wash sale treated?

Answer 13

loss is disallowed for tax purposes.

the basis of the repurchased security is equal to the purchase price of the new security plus the disallowed loss on the wash sale

Question 14

how are losses between related parties treated?

Answer 14

they are disallowed. the disallowed loss can be used to reduce a realized gain when the asset is sold to an unrelated party, but not below zero (usually the case; see notes)

Question 15

when would a corporation and shareholder be considered related parties?

Answer 15

when the shareholder owns more than 50% of the corporation

Question 16

what are Section 1231 assets?

Answer 16

depreciable personal property and real property used in a business and held for over 12 months

Question 17

what is an example of a capital asset?

Answer 17

automobile for personal use, land held as an investment, investment in bonds, personal residence

Question 18

what is the capital loss deduction limit?

Answer 18

3,000 per year. Excess is carried forward indefinitely. Applies to both ST and LT capital losses

Question 19

how is a gain from the sale of equipment used in a trade or business treated?

Answer 19

ordinary income for the amount of prior depreciation taken and Section 1231 gain for the excess

Question 20

what is an involuntary conversion?

Answer 20

a transaction that results from a condemnation of property or a destruction or loss from theft or casualty

Question 21

can an intangible asset such as a copyright be considered a 1231 asset?

Answer 21

NO

Question 22

what is the tax treatment of nonbusiness bad debt?

Answer 22

must be totally worthless to be deductible. treated as a ST capital loss in the year the asset becomes totally worthless

Question 23

when there is an installment sale, how do you determine the amount of the gain that is reported each year?

Answer 23

gross profit x cash received that year

Question 24

when is installment sale treatment of gains disallowed between related parties?

Answer 24

when the property being sold is depreciable property

Question 25

how is foreclosure of a property with a nonrecourse, secured loan treated?

Answer 25

treated as a sale of the property

Question 26

what does Section 1250 recapture apply to?

Answer 26

Section 1231 REAL property sold at a GAIN with accumulated depreciation in excess of straight line. The straight line amount is known as the unrecaptured Section 1250 gain

Question 27

what does Section 1245 recapture apply to?

Answer 27

Section 1231 PERSONAL property sold at a GAIN with accumulated depreciation

Question 28

what is the recovery period for depreciable realty?

Answer 28

27.5 years for residential and 39 years for commercial

Question 29

when computing the MACRS deduction, is salvage value included?

Answer 29

NO

Question 30

what are the requirements to qualify for Section 179 (election to expense certain depreciable business assets)?

Answer 30

the property must be tangible PERSONAL property acquired by purchase from an unrelated party for use in the active conduct of a trade or business

Question 31

is land a depreciable asset?

Answer 31

ABSOLUTELY FUCKING NOT

Question 32

are intangible assets such as the acquisition of goodwill, covenants not to compete, franchises, trademarks, and trade names amortized?

Answer 32

Yes, over 180 months (15 years) beginning in the month of acquisition

Question 33

can the Section 179 deduction be taken even if there is a loss?

Answer 33

NO

Question 34

the half year convention is for ___, while the mid month convention is for ___.

Answer 34

personal property; real property

Question 35

when would the mid quarter convention be used?

Answer 35

when more than 40% of all PERSONAL property purchased occurred during the fourth quarter

Question 36

is a rental property considered residential or commercial?

Answer 36

residential

Question 37

in a MACRS half year convention table, what years is the half-year convention built into?

Answer 37

the first and last, so if an asset is sold prior to the last year, the rate must be divided by 2