Property Transactions

Question 1

How do you calculate the basis of a gift when gift tax was paid? FAFE

Answer 1

Gift Tax Paid x (FMV-AB/FMV-Excl) PLUS AB of the gift given

Question 2

Is title insurance included in the cost of the property?

Answer 2

Yes title insurance should be included in the cost of the property when calculating the property’s basis.

Question 3

How do you calculate the gain or loss on a gift?

Answer 3

Loss basis use FMV Gain basis use AB

Question 4

What is normally the basis of a gift received?

Answer 4

Usually carryover basis.

Question 5

The Uniform Capitalization Rules of Code Sec. 263A apply to retailers whose average gross receipts for the preceding 3 years exceed what amount?

Answer 5

Uniform capitalization rules do not apply if property is acquired for resale and the company’s annual gross receipts (for the past 3 years) do not exceed $10 million.

Question 6

The basis of property received in exchange for service is determined by which of the following?

Answer 6

The fair market value of the property received.

Question 7

The uniform capitalization method must be used by

Answer 7

Manufacturers of tangible personal property

Question 8

For property converted into business use, the basis for depreciation is the

Answer 8

LESSER of the FMV of the property at the conversion date OR the AB at conversion.

Question 9

How are taxes that are assessed for local benefit that tend to increase the value of real property, such as sidewalks treated?

Answer 9

added to the property’s adjusted basis.

Question 10

The basis in property inherited from a decedent may be determined as follows:

Answer 10

The fair market value at the date of death or the fair market value at an alternative valuation date which is 6 months after death.

Question 11

Loss realized on sale or exchange of property to a related person is

Answer 11

not deductible

Question 12

Related parties include:

Answer 12

Ancestors (grandfather), descendants (granddaughter), spouses, and siblings.

Question 13

What are capital assets?

Answer 13

Capital assets are all property held by a taxpayer not excluded by the IRC. Among the items excluded are; AR Depreciable property, and real property used in a trade or business. The investment in U.S. Treasury bonds is a capital asset.

Question 14

If a security becomes worthless in the current taxable year, it is treated as sold or exchanged on

Answer 14

The last day of the current taxable year.

Question 15

To be treated as long-term, a capital asset must be held for?

Answer 15

A capital asset must be held for more than 1 year for gain or loss on its sale or exchange to be treated as long-term.

Question 16

Individuals are permitted to use to up how much capital loss to offset ordinary income each year? Can it be carried over or back and for how long?

Answer 16

$3,000 loss Can be carried forward indefinitely

Question 17

What is a wash sale and how are the losses treated?

Answer 17

A wash sale occurs when substantially the same securities are purchased within 30 days before or after being sold at a loss. A current loss realized on a wash sale of securities is not recognized.

Question 18

What happens to the disallowed loss in a wash sale?

Answer 18

The disallowed loss is added to the basis of the stock that is subsequently purchased.

Question 19

What tax rate is applied to gains or losses from the same of collectible items?

Answer 19

A 28% rate.

Question 20

When a nonbusiness bad debt becomes worthless, the loss that results is treated as

Answer 20

a short-term capital loss.

Question 21

What is the basis of an inherited asset? would the gain be LT or ST?

Answer 21

The basis of inherited property is the FMV on the date of death Sales of inherited property are automatically long-term gains (losses),

Question 22

Normally you can carry forward the Capital losses indefinitely, but there is an exception in regards to a decedent:

Answer 22

There can be no carryover from a decedent to his or her estate.

Question 23

How much can TPs exclude of the gain from the sale or exchange of small business stock?

Answer 23

Taxpayers may exclude 50% of the gain from the sale or exchange of small business stock if the stock was held for more than 5 years.

Question 24

If an owner of Sec. 1244 stock invests additional capital but is not issued additional shares of stock, the amount of the additional investment is

Answer 24

is added to the basis of the originally issued stock, but this subsequent increase to the basis of the originally issued stock does not qualify for ordinary loss treatment.

Question 25

In involuntary conversions, what is the year limit to buy replacement property? What is the limit if property was condemned? When does the countdown start?

Answer 25

2 year period for regular propert 3 years for condemned property The close of the tax year in which the gain was realized

Question 26

When is gain recognized in involuntary conversions?

Answer 26

Gain is recognized to the extent the amount realized is not reinvested in replacement property

Question 27

In a sale of a personal residence, how much gain can be excluded?

Answer 27

$250, 000 for single, $500, 000 if married filling jointly. Gain in excess must be included in gross income, usually as LTCG

Question 28

What is 1231 property?

Answer 28

Sec. 1231 property includes all real or depreciable property used in the taxpayer’s trade or business and held more than 1 year.

Question 29

How is Net 1231 gain treated? how is Net 1231 loss treated? What is the lookback rule?

Answer 29

Net 1231 gains are treated as LTCG Net 1231 losses are treated as ordinary 5 year lookback rule: Net 1231 gain will be treated as ordinary income to the extent of non-recaptured net 1231 losses for the 5 preceding taxable years.

Question 30

Explain Sections 1245 Depreciation recapture rules:

Answer 30

Gain recognized as ordinary income to the extent of Lesser of realized gain OR accelerated depreciation taken. Recapture only changes the character, not the amount.

Question 31

Explain 1250 recapture

Answer 31

Depreciable real property used in a trade or business is Sec. 1250 property. Sec. 1250 states that gain recognized on the disposition of this property is recaptured as ordinary income to the extent of the lesser of the excess of accelerated depreciation taken over straight-line depreciation taken or gain recognized.

Question 32

In a wash sale hour are married people treated?

Answer 32

n a wash sale, spouses are treated as one person.

Question 33

In a like kind exchange, how do you calculate the Basis?

ABS/BRA/GR

Answer 33

AB-Book Received+Gain Recognized=Basis of property received in a non taxable exchange.