Property Transactions Flashcards
What are the 3 types of assets?
Ordinary Income - current business assets
Section 1231 - non current business assets
Capital assets - non business assets
What are rules for Ordinary Income Assets?
Held <= 1 year
Includes inventory, receivables, self created artwork
What are rules for Section 1231 Assets?
If held > 1 year, net loss is ordinary, net gain is capital
If held <= 1 year - ordinary
Includes depreciable property, land, PPE used in business
What are rules for Capital Assets?
Includes investments, personal, family, household, goodwill
Does NOT include Treasury Stock
Non business bad debts W/O always S/T capital loss
What is holding period and valuation of inherited assets?
L/T
FMV at date of death or AVD
What is holding period and valuation for worthless security?
Treated as if sold on last day of tax year in which it becomes worthless
Generally considered capital loss
What is Section 1245 depreciation recapture?
Gains on tangible personal property must be reported as ordinary income to extent of prior depreciation
What is Section 1250 depreciation recapture?
Gains on real property must be reported as ordinary income up to additional depreciation taken over S/L
Remainder is 1231 gain (unrecaptured 1250 gain) taxed as LTCG at 25%
What is Section 291 depreciation recapture?
Applies to C Corps
Calculate difference between depreciation recaptured under 1250 and 1245
20% of difference treated as ordinary income also
What are the UNiCAP rules?
Any business that produces real or tangible personal property
Acquires property for resale with average annual gross receipts for past 3 years >$10M
Must capitalize costs of inventory, including:
Pre-production - design, bidding, purchasing
Production - materials, labor, factory OH, quality control
Pre-sale - storage, handling, excise tax, repackaging, warehousing
Expense selling, advertising, marketing, R and D, interest on NP
What is the rule for acquisition or production costs under Section 263?
Annual expense election of $5K per item or invoice
Must prepare audited financial statements
What are rules for improvements?
BAR - capitalize
Betterment
Adaptation
Restoration
What are rules for materials and supplies?
Incidental materials and supplies can be expensed immediately, such as:
Property that costs
What are rules for gift basis?
If appreciated property - carryover basis and holding period
If FMV lower than basis - use dual basis
What are wash sale rules?
Losses not deductible if asset has been sold at a loss in repurchased within 30 days of sale
Loss is added to basis of repurchased asset
What are considered related party sales?
Husband and wife Sister and brother Parent to child Grandparent to grandchild Ancestor to descendent Majority S/H and corporation Majority partner and partnership
Gains taxable, losses not deductible (similar to dual basis rule with gifts)
What are NOT considered related party sales?
Uncle Aunt Nephews In-laws Cousins Former spouse
What are like-kind exchange rules under Section 1031?
When property exchanged for similar property, no G/L reported
Only report gain for lesser of boot received or realized gain
Boot = cash, dissimilar assets, net debt relief
What are rules for involuntary conversions under Section 1033?
Gains from involuntary conversions can be deferred if property replaced within certain time limit
2 years - destruction or theft of property
3 years - government condemnation
4 years - declared federal disaster
Measured from calendar year at 12/31 taxpayer receives proceeds
Basis in replacement property = Cost - Deferred gain
What are rules for gain on sale of personal residence?
If lived in home 2 out of 5 years, can exclude gain up to $250K, $500K MFJ
What are installment sales method rules?
Only report portion of gain when receive payment
Not available for stock or property held for business
All depreciation recapture reported in year of sale
Installment Sale Income =
GP/Contract price = GP % x cash collected
