Property Transactions

Question 1

What are ordinary assets?

Answer 1

1) Inventory and accounts/notes receivables

2) Depreciable property and realty used in trade/business that have been owned for a year or less

Question 2

What are Section 1231 Assets?

Answer 2

Depreciable property used in a trade/business and realty that have been owned for more than one year

Question 3

What are capital Assets?

Answer 3

1) Property held for investment

2) property held for personal use

Question 4

How do you calculate realized gain or loss on a sale or disposition?

Answer 4

Amount realized - Adjusted basis

Question 5

How to compute amount realized?

Answer 5

1) Cash received; plus
2) FMV received; plus
3) Liabilities assumed; minus
4) Selling expenses

Question 6

How to determine adjusted basis?

Answer 6

Equals the cost or other acquisition basis of property;
Plus capital improvements;
Minus depreciation

Question 7

What is the donee’s basis if property is gifted to a taxpayer?

Answer 7

a. Gain basis = adjusted basis of the donor
b. Loss basis = lower of:
I. FMV at the date of gift
ii. Adjusted basis of the donor
c. Depreciable basis = gain

Question 8

What are the tax effects of basis for gifts?

Answer 8

1) A gain is recognized only if the done sells property for more than the gain basis
2) A loss is recognized only if the done sells property for less than the loss basis

Question 9

What is the holding period for gifted property?

Answer 9

1) If the gain basis is used to compute realized gain or loss; the holding period of the property for the done = holding period of the donor
2) loss basis = holding period begins on the date of the gift

Question 10

How much Net Capital Loss an individual can deduct per year?

Answer 10

$3,000

Question 11

What is the carryforward period for Net Capital Loss for individuals?

Answer 11

Carried forward indefinitely, can’t be carried back

Question 12

How is gains and losses treated for Section 1244 stock?

Answer 12

Gain is treated as regular long-term capital gains

Loss is treated as ordinary losses

Question 13

What is the maximum amount that can be characterized as ordinary for Sec 1244 stock?

Answer 13

Single - $50,000

MFJ - $100,000

Question 14

How is gains and losses treated for Section 1231 Assets?

Answer 14

Gains treated as LTCG

Loss deductible as ordinary loss

Question 15

What is the lookback provision for Section 1231 gains and losses?

Answer 15

1) gains offset 1231 losses from preceding 5 years
2) 1231 gain treated as ordinary income to the extent of the losses
3) Recapture rate is 25%

Question 16

What does section 1245 recapture apply to?

Answer 16

section 1245 property is all depreciable property except buildings

Question 17

How do you calculate section 1245 recapture?

Answer 17

Is the lesser of gain recognized or all depreciation taken

Question 18

How does Section 1245 treat gain on property disposed?

Answer 18

As ordinary income to the extent of depreciation; any excess is treated as Section 1231 gain.

Question 19

How does Section 1245 treat losses on property disposed?

Answer 19

No recapture is required

Question 20

What does Section 1250 recapture apply to?

Answer 20

Buildings (depreciable real property)

Question 21

When is Section 1250 recapture apply?

Answer 21

When accelerated depreciation method is used and property is sold for a gain

Question 22

How does Section 1250 treat gains?

Answer 22

Equal to the excess of accelerated depreciation taken over straight line depreciation as ordinary income. The lower of additional depreciation or recognized gain is ordinary income. The excess in gain is Section 1231 gain

Question 23

How is gain and losses recognized for like kind exchanges?

Answer 23

Losses are never recognized

Gains is the lesser of:

1. realized gain; or
2. boot received

Question 24

How to calculate basis of property after like kind exchange?

Answer 24

Adjusted basis or property given + gain recognized + boot given (cash paid, debt assumed) -boot received (cash received, debt relief)

Question 25

What are the MACRS years for personalty property?

Answer 25

5 years - computers, delivery truck

7 years - computer desk, office furniture

39 years - buildings

Question 26

What are the MACRS years for realty property?

Answer 26

mid-month S/L
27.5 years - residential
39 years - non residential

intangible assets amortized over 180 years

mid quarter is used when 40% of the assets is purchased in the last quarter