Property Taxation Flashcards
how is the basis of property acquired calculated?
cash payment + related debt + additional cost incurred related to purchase (e.g., title insurance)
what is the de minimis safe harbor rule?
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
are recipients of inherited property subject to income tax on the property (i.e., is the property value included in gross income)?
NO, but income or loss may result when the property is sold, which would be subject to tax
what is the basis of inherited property to the beneficiary?
the FMV at the date of the person’s death (or the alternate valuation date, which is 6 months later)
what if the alternate valuation date is elected, but the asset is sold or distributed before that date?
beneficiary’s basis is the FMV on the date of sale or distribution
if someone sells a house for a gain, is any of that gain excludable from gross income?
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)
on an exchange for like-kind property (real estate), how is the recognized gain determined?
the lesser of:
the gain realized
or
the net boot received (e.g., cash, relief from liabilities, non qualifying property)
is any deduction allowed for the loss on disposal of a personal-use asset?
NO
when there is a like-kind property exchange, how is the taxpayer’s basis in the property received calculated?
the adjusted basis of the old property + net boot paid (or minus net boot received) + gain recognized
are losses ever recognized in like-kind exchanges?
NO
what is the formula for calculating loss on involuntary conversion?
asset carrying amount removal and clean up cost \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ basis of involuntary conversion (insurance proceeds) \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ loss on involuntary conversion
what is a wash sale?
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.
how is a loss on a wash sale treated?
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
how are losses between related parties treated?
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)
when would a corporation and shareholder be considered related parties?
when the shareholder owns more than 50% of the corporation
what are Section 1231 assets?
depreciable personal property and real property used in a business and held for over 12 months
what is an example of a capital asset?
automobile for personal use, land held as an investment, investment in bonds, personal residence
what is the capital loss deduction limit?
3,000 per year. Excess is carried forward indefinitely. Applies to both ST and LT capital losses
how is a gain from the sale of equipment used in a trade or business treated?
ordinary income for the amount of prior depreciation taken and Section 1231 gain for the excess
what is an involuntary conversion?
a transaction that results from a condemnation of property or a destruction or loss from theft or casualty
can an intangible asset such as a copyright be considered a 1231 asset?
NO
what is the tax treatment of nonbusiness bad debt?
must be totally worthless to be deductible. treated as a ST capital loss in the year the asset becomes totally worthless
when there is an installment sale, how do you determine the amount of the gain that is reported each year?
gross profit x cash received that year
when is installment sale treatment of gains disallowed between related parties?
when the property being sold is depreciable property
how is foreclosure of a property with a nonrecourse, secured loan treated?
treated as a sale of the property
what does Section 1250 recapture apply to?
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
what does Section 1245 recapture apply to?
Section 1231 PERSONAL property sold at a GAIN with accumulated depreciation
what is the recovery period for depreciable realty?
27.5 years for residential and 39 years for commercial
when computing the MACRS deduction, is salvage value included?
NO
what are the requirements to qualify for Section 179 (election to expense certain depreciable business assets)?
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
is land a depreciable asset?
ABSOLUTELY FUCKING NOT
are intangible assets such as the acquisition of goodwill, covenants not to compete, franchises, trademarks, and trade names amortized?
Yes, over 180 months (15 years) beginning in the month of acquisition
can the Section 179 deduction be taken even if there is a loss?
NO
the half year convention is for ___, while the mid month convention is for ___.
personal property; real property
when would the mid quarter convention be used?
when more than 40% of all PERSONAL property purchased occurred during the fourth quarter
is a rental property considered residential or commercial?
residential
in a MACRS half year convention table, what years is the half-year convention built into?
the first and last, so if an asset is sold prior to the last year, the rate must be divided by 2
