Property Taxes (R2) Flashcards
section 179
-non residental only; not residental
-max deduction: 1,220,000 in a year
-cannot use section 179 to make a loss, or if you already have a NOL - so limited to taxable income, if it is less than the equipment bought
-does not apply to land
-if equipment is over $3,050,000 then dollar for dollar phase out, so difference between this amount and amount of equipment is subtracted from the max deduction to equal amount you can 179 this year *pay attention it does not create a loss
using section 179 for qualified improvements - called “qualified improvement property”
for interior of nonresidental property and must be after building was placed into service - so can fully deduct alarm system being added
how much income to record for inherited property or stock
there is no income tax on the value of something inherited - gain would be the difference between selling price and basis
how are losses on personal assets treated
they are not deductible
deminis safe harbour rule
allows to deduct up to $5,000 per item - can be expensed and deducted
when personal property is being moved to business property, what is the tax basis for depreciation
the FMV at date of conversion
when personal property is being moved to business property, what is the depreciation basis of property
lesser of: (1) the original cost basis, as adjusted for any improvements to the property; or (2) the FMV of the property on the date of conversion.
personal property convention
half year * unless 40% was placed into service in last quarter of year then mid quater
real property (non res or res buildings)
always use mid month
real property
land and all items that are permanently attached to it - buildings, paving etc
personal property
all property not classified as real property (machinery, equipment, trucks, cars)
stock dividend calculation
amount of shares x 1.1 for 10% dividend
capital assets
create capital gains/losses and include: assets that are held or used for investment or personal use(personal car, home)
noncapital assets
typically taxed as ordinary income or loss - include assets that are held for sale to customers (ie inventory), AR from sales, or items used in taxpayers trade or business (real property or personal property)
MACRS 3 year
special tools and certain racehorses
MACRS 5 year
automobiles, light trucks, computers and copiers
MACRS 7 year
furniture and fixtures, machinery and other equipment
MACRS 10 year
boat and other transportation equipment
MACRS 15 year
qualified improvements
MACRS 20 year
certain farm buildings and municipal sewers
what to do with salvage value with MACRS
ignore salvage value
rules for calculating MACRS half year convention
year 1 = amount x %
year 2 = amount x %
if sold before year end, then do amount x % x 50%
*because half year takes half in first year and half in second year, but already reflected in first year in percentages tables
mid quarter convention
only used when more than 40% of personal property is placed in service in the last quarter of the year - if it is disposed of early, the full year macrs rate must be multiplied by mid quarter ratio
percentages to calculate if disposed of early
Qt 1: 12.5%
Qt 2: 25% + 12.5%
Qt 3: 50% + 12.5%
Qt 4: 75% + 12.5%
depreciation for residential property (apartment buildings, rental homes etc)
27.5 years straight line depreciation -
depreciation for nonresidential property (office buildings, warehouses etc)
39 year straight line depreciation
donees tax basis in gifted property
three scenarios based on future selling price
depreciation basis for gifted property
lesser of:
donors adjusted basis at date of gift
FMV at date of gift
holding period of the gifted property
-long term property sold for a gain: use capital gain rates
-short term property sold for a gain: use ordinary income rate
-GR: recipient of gift gets to absorb the donors holding period
who pays gift tax
never the done (receiving the gift) but sometimes the donor if over
general rule of basis for gifts
donors basis is rolled over to the donee: then once gift is sold, the taxpayer recognizes a gain or loss for sales price - rollover basis received
exception to the general rule for gifts
when the FMV at date of gift is < the donors NBV : the basis depends on the future sales price *three possible scenarios
donees tax basis in gifted property when sales price > NBV
basis: use NBV as the basis and recognize the gain
holding period: use the donors holding period
donees tax basis in gifted property when sales price < FMV
basis: use FMV as basis and loss is recognized
holding period: begins at the date of the gift and no rollover holding period occurs
donees tax basis in the gifted property when the sales price is in between NBV and FMV
basis: sales price is the basis, so no gain or loss is recognized
holding period: holding period is not relevant
basis rule for inherited property basis
fair market value at the date of death *ignore basis given and it is ok if given to wife in scenario
holding period for inherited property
always considered to be long term property
tax basis for depreciation for converting property from personal use to business use
lesser of:
-original cost basis (adjusted for any improvements)
-FMV of property on date of conversion
tax basis for determining a gain
adjusted basis of the property at the date of sale
tax basis for determining a deductible loss
take lesser of: adjusted cost basis or FMV of property (both at time of conversion to business use) then reduce by depreciation taken after conversion
capital loss deduction and carryover rules for individuals
$3,000 max deduction or carry forward indef. and no carryback
what are nondeductible losses (3 types)
wash sales, related party transactions, and personal losses
wash sale
when a security (stock or bond) is sold for a loss and is repurchased within 30 days - only applies to losses not gains
basis of new shares you purchased when a wash sale
purchase price + disallowed loss on wash sale
who can use section 179 deduction
personal property placed into service and real property improvements
bonus depreciation
comes after section 179; use allowable bonus depreciation percentage: 60% in 2024
amortization rule
intangible assets are amortized using straight line method with a full month conversion - over 180 months or 15 years
organizational and start up costs
-$ for $ phase out if over 50,000
-immediately expense $5,000 and amortize rest of 180 months x amounts for the year + the $5,000 already expenses equals total deduction for that years start up costs or organizational costs
when dealing with wash sales, what is the tax basis of stock sold in current year
purchase price x amount of shares
how do C corps recognize capital losses
only to the extent of capital gains - can go back three years and forward five years to offset other net capital gains
