Property Transactions

Question 1

Cost of property + Purchase expenses + Debt assumed + Back taxes and interest paid = Basis. Note: taxes and interest related to time when a taxpayer did not own the property are not deductible - they are added to basis.

Answer 1

Property transactions

Question 2

Sold at a gain: use donor’s basis

Sold at a loss: use lesser of donor’s basis or FMV at time of distribution

Sold in between donor’s basis and FMV: No gain or loss

Answer 2

Property transactions

Question 3

FMV at date of death or alternate valuation date (6 months later)

If alternate date is elected by property is sold before 6 month window; use FMV at date of death.

Property inherited is LTCG property regardless of how long it is held by the recipient.

Answer 3

Property transactions

Question 4

Holding period of new stock received from a dividend takes on the holding period of the original stock

Answer 4

Property transactions

Question 5

Real for real or personal for personal business property only

US property only

Answer 5

Property transactions

Question 6

Cash received + unlike property received + liability passed to other party

Answer 6

Property transactions

Question 7

DO NOT subtract the boot paid amount from the cash received

Ignore the boot paid amount from the mortgage completely

Answer 7

Property transactions

Question 8

Occurs when you receive money for a property involuntarily converted

There is no gain if you reinvest the proceeds completely

If proceeds not completely reinvested; gain is LESSER of realized gain or amount not reinvested.

Answer 8

Property transactions

Question 9

Must live there 2 out of 5 years

Loss on sale of home is NOT deductible

Answer 9

Property transactions

Question 10

30 Day rule applies

Disallowed loss adds to basis of new stock

New stock takes on date of acquisition of old stock

Answer 10

Property transactions

Question 11

Ancestors; siblings; spouse; descendants; corporation or partnership where you’re a 50% shareholder

Seller cannot take a loss on sale to a related party; but gain is always recognized.

Related party gets to use the disallowed loss when they sell.

Related party’s holding period begins when they acquire the property.

In-laws are NOT related parties.

Answer 11

Property transactions

Question 12

capital losses only offset capital gains

Carryback 3 years - if you elect NOT to carryback; you lost the option in the future

Carry forward 5 years - only as STCL

Answer 12

Property transactions

Question 13

Inventory; Business interest; Accounts Receivable; Covenant not to compete

Goodwill IS a capital asset

Answer 13

Property transactions

Question 14

Net all STCG and STCL

Net all LTCG and LTCL

Add together

Deduct $3;000

Answer 14

Property transactions

Question 15

$3;000 per year. Unused is carried forward and taken $3;000 each year.

No carryback is allowed.

Answer 15

Property transactions

Question 16

Real or Personal Business Property held more than a year

Inventory is never 1231 Property

Answer 16

Property transactions

Question 17

Casualty Losses on 1231 Property - Net the losses

• Net Loss = Ordinary Loss
• Net Gain = Combine with other 1231 Gains

1231 Net Loss - If 1231 Losses exceed gains; treat as Ordinary Loss

1231 Net Gain - If 1231 Gains exceed losses; treat at LTCG

1231 Gain = LTCG

1231 Loss = Ordinary Loss

Answer 17

Property transactions

Question 18

To the extent of depreciation; treat as ordinary gain
Remainder is 1231 gain; which is LTCG - There are no 1245 Losses

1231 Gain = LTCG
1245 Gain = Ordinary
Casualty Gain = LTCG

1231 Loss = Ordinary
1245 Loss = N/A
Casualty Loss = Ordinary

Answer 18

Property transactions

Question 19

1250 property is Real Estate that is not 1231 Property
Use 1250 for Gain only. For losses; use 1231

Individuals: Post-1986 property with a gain is 1231 LTCG

If Straight Line depreciation is used; don’t use 1250 - Entire gain is 1231

Corps: Section 291 requires 20% of depreciation classified as ordinary gain
Remainder is 1231 LTCG

Answer 19

Property transactions

Question 20

When the asset is held less than one year.

Answer 20

Property transactions