Property Transactions Flashcards
Basic Formula
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
Gifts
GAIN BASIS = Adj. B of the DONOR
LOSS BASIS = Lower of:
- FMV (at date of gift)
- 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
Inheritances
Basis = FMV at date of death OR
Alternative date = 6 months after death
Converted Property
GAIN basis = Adjusted Basis
LOSS basis = Lower of:
- Adjusted Basis
- FMV (conversion date)
Short Term Capital Gains - Distributions
Taxed as ordinary income
NOT included in the netting process
INDIVIDUALS
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)
Net Investment Income Tax
Additional 3.8% tax IF:
Joint AGI > 250,000
Single AGI > 200,000
Tax Rates for GAINS
39.6 bracket = 20%
15% or < bracket = 0%
ALL OTHER brackets = 15%
*Gain on SL Dep claimed on real-estate, MAX 25%
Categories of Assets
- Ordinary
- Section 1231
- Capital
Section 1231
Used in trade/business, HELD for 1 year or more
Broken up into 3 types:
- 1245
* Gains, ordinary income to extent of ACC. DEP, the rest is 1231 gains - 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 - LAND (cannot be dep)
**1250 for corps
= [1245 recap - 1250 recap]20%
Depreciation - Cost Recovery PERSONALTY
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
Depreciation - Cost Recovery REALTY
BUILDINGS
Residential = 27.5 years Commercial = 39 years
Straight Line
MID MONTH CONVENTION
(1/2 in month purchased …… 1/2 in month sold)
Bonus Depreciation
- Allowed for NEW ualifying property
- Applies unless elects not to
- Recovery period < or = to 20 years
Section 179 Election
- 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
Like-Kind Exchanges
LOSSES are NEVER recognized
GAINS = Lesser of:
1. Realized gain
2. Boot received
Involuntary Conversions
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
Wash Sales
*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
Related Parties
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
Sale of Principal Residence
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
Installment Sales
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
Mutual Funds
Cap Gain distributions reported on Schedule D as long-term gains
IF short term gains, shown as dividend income.. Form 1099-DIV
Section 1244 Stock
- 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
Qualifying Small Business Srock
- 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
1245 Recapture
- ALL depreciation taken is subject to recapture
1245 OI taken to extent of all depreciation taken
1231 Gain = any gain leftover
1250 Recapture (individuals)
- Only to the excess of depreciation over SL
1250 OI = ALL dep - SL dep
SL 25% = SL depreciation taken
1231 Gain = Any gain leftover
1250 Recapture (Corporations)
- 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
