Property Transactions Flashcards
What is the basic calculation for basis in property?
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.
What is the recipient or donee’s basis on gifted property?
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
What is the basis and holding period of inherited property?
Basis = FMV 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.
What is the holding period on a stock dividend?
Holding period of new stock received from a dividend takes on the holding period of the original stock
What property is eligible for like-kind exchange treatment?
Real for real or personal for personal business property only
US property only
Gain is realized but not recognized. Gain to extent of BOOT received.
No Loss is recognized.
What is BOOT in a like-kind exchange?
Cash received
+ unlike property received
+ liability passed to other party
BOOT may convert realized gain to recognized gain
In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?
DO NOT subtract the boot paid amount from the cash received
Ignore the boot paid amount from the mortgage completely
What is an involuntary conversion? When does it not result in a gain?
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.
Realized gain can be deferred for 2 years
What are the requirements for exclusion of gain on a primary residence? How are losses treated?
Must live there 2 out of 5 years
Loss on sale of home is NOT deductible
What is a wash sale?
30 Day rule applies
Disallowed loss adds to basis of new stock
New stock takes on date of acquisition of old stock
Who is considered a related party in a property transaction? How does it affect the transaction?
Ancestors; siblings; spouse; descendants; corporation or partnership where you’re a 50% shareholder
NO Loss recognized, but recognize gain.
When sell can use the disallowed loss netted against gain.
Related party’s holding period begins when they acquire the property.
In-laws are NOT related parties.
How are capital losses taken in a corporation?
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
What assets are NOT capital assets?
Inventory; Business interest; Accounts Receivable;
Covenant not to compete
Goodwill IS a capital asset
What are the steps in applying a capital gain or loss?
Net all STCG and STCL
Net all LTCG and LTCL
Add together
Deduct $3,000
How much ordinary income can be offset by an INDIVIDUAL’s capital losses?
$3,000 per year.
Unused is carried forward and taken $3,000 each year.
No carryback is allowed.
Which property is governed by section 1231?
Real or Personal Business Property held more than a year
Inventory and personal use is never 1231 Property
How are section 1231 gains and losses handled?
Casualty Losses on 1231 Property - Net the losses
- Net Loss = Ordinary Loss
- Net Gain = Combine with other 1231 Gains (LTCG)
1231 Net Loss: If 1231 Losses exceed gains; treat as Ordinary Loss
1231 Net Gain: If 1231 Gains exceed losses; treat at LTCG
How is section 1245 depreciation recapture handled?
Gain is to the extent of depreciation; treat as ordinary gain
Remainder is 1231 gain (LTCG) - There are no 1245 Losses
1245 Gain = Ordinary
1245 Loss = N/A goes to 1231
What property qualifies for section 1250 treatment; and how are gains/losses handled?
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
What ratio is applied to principle payments in an installment sale to determine the gain in a given year?
Gross Profit / Contract Price
What is the contract price in an installment sale for income tax purposes?
Contract Price = Sales Price - Liability assumed by buyer
What is (are) the depreciation convention(s) for personal property?
Mid-year/Mid-quarter
When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
What depreciation convention is used for real property?
Mid-month
What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
What is Section 179 expense?
Can deduct all or part of property acquired as expense immediately. $500k limit
ONLY for depreciable personal property used in trade or business.
Property basis is immediately reduced.
What amount can a taxpayer exclude from sale of a personal residence?
Realized gain of up to $250k (single) or $500k (MFJ) on sale of principle residence.
Must live and own for 2 of 5 years.
Only use every 2 years.
How are intangible assets treated?
Amortize over 180 months.
What is excluded from the installment sale method?
Inventory Personal property sales dealer dispositions Publicly traded securities Escrow-account sale payment
How much gain of a small business stock can be excluded?
50% if held more than 5 years
