Property Transactions Flashcards
TAX BASIS IN A PROPERTY Calculation
Cost of property
+Purchase expenses
+Debt assumed
+Back taxes and interest paid
What is the treatment on back taxes and interest paid on property transactions?
Back taxes and interest paid by taxpayer are not deductible for assessments on time taxpayer did not own the property - they only add to property’s basis.
What is the tax basis for gifted property?
USE BASIS, NOT FMV
What is the tax basis for gifted property sold at a gain?
Use donor’s basis
What is the tax basis for gifted property sold at a loss?
Use lesser of donor’s basis or FMV at time of distribution
What is the tax basis for gifted property sold in-between donor’s basis and FMV?
No Gain or Loss
What is the tax treatment of ESTATE PROPERTY INHERITED?
USE FMV, NOT BASIS
Which date should be used for estate property inherited?
Use FMV at death or Alternate Valuation Date (6 mo. later)
o If Alt. date is chosen but sold before 6 mo. window, use FMV at date sold
How is Property inherited is recognized?
LTCG property regardless of how long you hold it after receipt
What is the STOCK DIVIDEND HOLDING PERIOD?
Holding period of new stock received from a dividend takes on the holding period of the original stock
SALE OF AN ASSET GAIN CALCULATION
Selling Price (cash received + liability relieved)
Gain
What is a LIKE-KIND EXCHANGE?
- Real for real or personal for personal business property only
- US property only
What is INVOLUNTARY CONVERSION?
- Occurs when you receive money for a property involuntarily converted
- There is no gain if you reinvest the proceeds completely
- If not…
Example:
Received $24,000 Reinvested $21,000
Basis Not Reinvested $3,000
Realized Gain $4,000
Realized Gain $4,000 vs. Not Reinvested $3,000
Take the lesser… Recognized Gain = $3,000
SALE ON HOME (PERSONAL RESIDENCE)
- Must live there 2 out of 5 years
2. Loss on sale of home is NOT deductible
WASH SALE
- 30-Day rule applies
- Disallowed loss adds to basis of new stock
- New stock takes on date of acquisition of old stock
What are SALES BETWEEN RELATED PARTIES?
- Ancestors
- Brother/Sister
- Spouse
- Descendants
- Corporation or partnership where you’re a 50% shareholder
- Seller cannot take a loss on a sale, but the gain is always recognized
- Related party gets to use the disallowed loss when sold
o Never below zero - i.e. a net loss is not allowed
o Related party’s holding period begins when they acquire property
8.In-Laws are not related parties
What are the effects of CAPITAL LOSSES (CORPORATIONS)?
- Capital losses only offset capital gains
- Carryback 3 Years
o If you elect to not carryback when able, you lose the option in the future - Carryforward 5 Years - only as a STCL
How is CAPITAL GAIN/LOSS PROPERTY CLASSIFICATION?
- Inventory is NOT a capital asset
- Business property is NOT a capital asset
- A/R is NOT a capital asset
- Covenant not to compete is NOT a capital asset (and your basis is zero)
- Goodwill (internally generated) IS a capital asset
What are CAPITAL GAINS AND LOSSES (NON-CORPORATIONS)?
- Net all STCG and STCL
- Net all LTCG and LTCL
Example:
Net STCG $10,000
Net LTCL
Net LTCL
Deduct $3,000
LTCL Carryforward
Note: a Carryforward always maintains its character
CAPITAL LOSSES FOR INDIVIDUALS?
- Individuals can offset $3,000 of ordinary income with a $3,000 capital loss
- Unused capital losses don’t get deducted on decedent’s final return, but unused passive losses do
- No Carryback for Individuals allowed
Treatment of PERSONAL PROPERTY USED IN BUSINESS?
Any G/L on business property held
What are 1231 PROPERTY?
Real or Personal Property held more than a year o Inventory is never 1231 Property Casualty Losses on 1231 Property o Net the losses Net Loss = Ordinary Loss Net Gain = Combine with other 1231 Gains
What are 1231 Net Loss?
If 1231 Losses > Gains, treat as Ordinary Loss
What are 1231 Net Gain?
If 1231 Gains > Losses, treat as LTCG
What is a 1231 Gain?
LTCG
What is a 1231 Loss?
Ordinary Loss
What is 1245 (PERSONAL) DEPRECIATION RECAPTURE?
You sell a piece of depreciated machinery at a gain
o Some of gain is treated as ordinary income
Amount of depreciation
Remainder of the gain is a 1231 LTCG
Are there any 1245 Losses?
No
What is a 1245 Gain?
Ordinary
What is a Casualty Gain?
LTCG
Are there 1245 Losses?
No, N/A
What is a Casualty Loss on 1245?
Ordinary Example: Sale Price $102,000 Cost of Asset Depreciation Basis $52,475 Gain 1245 Ordinary 1231 LTCG $2,000
What is 1250 (REAL) DEPRECIATION RECAPTURE?
You sell a building at a gain
There are no 1250 Losses
Individuals: Post-1986 property with gain is 1231 LTCG
If Straight Line depreciation is used, don’t use 1250
o Entire Gain is 1231
Corps: Section 291 requires 20% of depreciation classified as ordinary gain
o Remainder is 1231 LTCG
What is DEPRECIATION RECAPTURE?
Sec. 1245 for Personal Property Sec. 291 for Corporate Real Estate Example: Involuntary Conversion Amount received from involuntary conversion $125,000 Price of replacement building $110,000 Cost of original building $100,000 Depreciation taken Basis $86,000 Realized Gain $39,000 Take lesser of realized gain or amount NOT invested Realized Gain $39,000 vs Amount NOT invested $15,000 ($125,000 - $110,000) Recognized Gain $15,000 Ordinary Gain $14,000 (from depreciation) 1231 LTCG $1,000
Rule for 1231 question on your Exam
The amount of depreciation listed represents Ordinary Gain Income
What is the rule if any 1231, 1245, 1250 asset is held
Gain or Loss is Ordinary
