Property Transactions

Question 1

Basic Formula

Answer 1

Amount Realized
(Adjusted Basis)
= Realized gain/loss

Amount realized = cash + FMV + liab assumed + selling expenses

Adjusted Basis = cost + capital improvements + any liabilities/expenses - MINUS depreciation

Question 2

Gifts

Answer 2

GAIN BASIS = Adj. B of the DONOR

LOSS BASIS = Lower of:

1. FMV (at date of gift)
2. Adj. B of the Donor

GAIN is recognized ONLY if the donee sells for MORE than the basis

LOSS is recognized ONLY if the donee sells for LESS than the basis

Holding Period: Gain bais = carries over
Loss basis = date of gift

Question 3

Inheritances

Answer 3

Basis = FMV at date of death OR

Alternative date = 6 months after death

Question 4

Converted Property

Answer 4

GAIN basis = Adjusted Basis

LOSS basis = Lower of:

1. Adjusted Basis
2. FMV (conversion date)

Question 5

Short Term Capital Gains - Distributions

Answer 5

Taxed as ordinary income

NOT included in the netting process

Question 6

INDIVIDUALS

Answer 6

Net capital loss deduction = 3,000/year FOR AGI

This is limited to taxable income

*Upon death, CANNOT be transferred, only used int he year of death

*LOSSES carried forward retain “s-t” / “l-t” and will offset in the following order:
28%
25%
20% /(15% for some)

Question 7

Net Investment Income Tax

Answer 7

Additional 3.8% tax IF:

Joint AGI > 250,000
Single AGI > 200,000

Question 8

Tax Rates for GAINS

Answer 8

39.6 bracket = 20%
15% or < bracket = 0%
ALL OTHER brackets = 15%

*Gain on SL Dep claimed on real-estate, MAX 25%

Question 9

Categories of Assets

Answer 9

1. Ordinary
2. Section 1231
3. Capital

Question 10

Section 1231

Answer 10

Used in trade/business, HELD for 1 year or more
Broken up into 3 types:

1. 1245
   * Gains, ordinary income to extent of ACC. DEP, the rest is 1231 gains
2. 1250 BUILDINGS
   * Recapture of accumulated accelerated dep (ACCUMULATED - SL DEPRECIATION) ORDINARY
   * *THEN 25% gain for SL DEP.
   * **THEN anything left is allocated to 1231 gain
3. LAND (cannot be dep)

**1250 for corps
= [1245 recap - 1250 recap]20%

Question 11

Depreciation - Cost Recovery PERSONALTY

Answer 11

ONLY business property/income producing property can be depreciated

PERSONALTY =
200% of 150% declining balance
MID YEAR CONVENTION
(1/2 in yr bought…….1/2 in year sold)

CLASSES:
3yr - race horses
5yr - cars, trucks, computers, copiers, office equip, assets in prof services/retail, appliances, furniture in real estate
7yr - office furn, office fixtures, agricultural, other machinery

IF MORE THAN 40% of ALL placed into service DURING the last QUARTER then the MID QUARTER CONVENTION is used

*CAN also use the SL method if elected

Question 12

Depreciation - Cost Recovery REALTY

Answer 12

BUILDINGS

Residential = 27.5 years
Commercial = 39 years 

Straight Line

MID MONTH CONVENTION
(1/2 in month purchased …… 1/2 in month sold)

Question 13

Bonus Depreciation

Answer 13

• Allowed for NEW ualifying property
• Applies unless elects not to
• Recovery period < or = to 20 years

Question 14

Section 179 Election

Answer 14

• Accelerated depreciation…before bonus depreciation
  1. Max amount expensed in any year is limited to the lesser of business income or 500,000
  2. CANNOT exceed income from business; ANY expense in excess of business income limit is carried forward
• PHASED OUT - IF assets purchased exceed 2,010,000 ‘16 means there is no carry forward allowed
  e.g. 2,050,000
  (2,010,000)
  40,000
  So…500k is reduced to 460,000 limit
• *CAN evoke election in years later
• *If converted to non business,excess must be recaptured as income

Question 15

Like-Kind Exchanges

Answer 15

LOSSES are NEVER recognized
GAINS = Lesser of:
1. Realized gain
2. Boot received

Question 16

Involuntary Conversions

Answer 16

e.g. theft, destruction, natural disasters, seizures, condemnations

Amount realized - cost of replacement = realized gain

Replacement property must be similar or related in service or use; within 2 years of event; within 3 years IF business/investment real property

Question 17

Wash Sales

Answer 17

*Securities or stock
LOSSES are NOT recognized IF similar securitites are purchased within 30 days before/ 30 days after sale (61 days total)

BASIS in new stock = COST + disallowed loss

Because the loss is deferred, the holding period is carried over

Question 18

Related Parties

Answer 18

Holding period does NOT carry over

LOSSES btwn ___ ____ on sales/dispositions of property are NOT recognized

spouses, descendants, ancestors, siblings, corp stockholder w/ > 50% stock, partnerships, 2 business entities

NOT = inlaws, aunts/uncles, cousins

DISALLOWED LOSS = Right of Offset rule
The loss can be used in the future by new owner to offset any gain when the current owner disposes of property in the future (except personal property)
*****CAN only reduce a gain to ZERO, cannot create a LOSS

Question 19

Sale of Principal Residence

Answer 19

LOSS cannot be deducted
GAIN excluded up to single: 250,000
joint: 500,000
REQUIREMENT tests:
- SINGLE: ownership + use test (occupied 2 of 5 yrs b4 sale
- JOINT: ONE meets ownership + both meet use test
CAN BE DONE ONCE EVERY 2 YEARS

Question 20

Installment Sales

Answer 20

Does NOT apply to lossess
***GROSS PROFIT from sale is recognized as cash is received

Recognized gain = Cash received * GP%
GP% = ratio of gain to be recognized to contract proce

Question 21

Mutual Funds

Answer 21

Cap Gain distributions reported on Schedule D as long-term gains

IF short term gains, shown as dividend income.. Form 1099-DIV

Question 22

Section 1244 Stock

Answer 22

• First 50,000 of losses (100,000 for joint) from the sale of this stock will be ORDINARY LOSS
• MUST be original holder
• To qualify, total capitalization of the Corp cannot exceed 1,000,000 at time stock was issued

Question 23

Qualifying Small Business Srock

Answer 23

• Corp, Less than 50 million in capital, HELD for more than 5 years before sold
• MAX gain eligible for exclusion is the greater of 10 times the basis in stock or 10million
• Exclusion % =
  50% purchased before Feb 18th 2009
  75% purchased after feb 17th2009 before sept. 28 2010

Question 24

1245 Recapture

Answer 24

• ALL depreciation taken is subject to recapture

1245 OI taken to extent of all depreciation taken
1231 Gain = any gain leftover

Question 25

1250 Recapture (individuals)

Answer 25

• Only to the excess of depreciation over SL

1250 OI = ALL dep - SL dep
SL 25% = SL depreciation taken
1231 Gain = Any gain leftover

Question 26

1250 Recapture (Corporations)

Answer 26

• Only to the extent of depreciation over SL; EXCEPT SL is not at 25% rate rather 1245-1250*20%

1250 OI = ALL dep - SL dep
SEC 291 OI = 1245-1250*20%
1231 Gain = Any gain leftover