Property Transactions, Basis and Gains

Question 1

HOW much can a taxpayer exclude of their gain from the sale or exchange of small business stock?

Answer 1

50%

i.e. Taxpayers may exclude 50% of the gain from the sale or exchange of small business stock; if the stock was held for more than (5 years)

Question 2

HOW can a corporation treat their capital losses?

Answer 2

TO offset their capital gains each year

i.e. A corporation must carry the excess capital loss back 3 years and forward 5 years

Question 3

WHAT is the annual threshold for long-term capital losses on property held for investment?

Answer 3

$3,000

Question 4

What are the rules for determining loss on the sale of property acquired by gift?

Answer 4

THE basis may NOT exceed the fair market value (FMV) of the property at the date of the gift

Note: For gains, the “basis” is the donor’s adjusted basis

Question 5

HOW do you account for the repurchase of identical stock within a 30 day period?

Answer 5

As a “wash sale”

Question 6

WHAT are considered “Capital assets?”

Answer 6

ALL property held by a taxpayer unless excluded by the IRC

e.g. Personal use property, such as a residence

Question 7

HOW may a taxpayer treat a Gain or loss on property acquired (but disposed of within 12 months by recipient) from a decedent?

Answer 7

As if the beneficiary held the property more than 12 months

i.e. Property acquired from a decedent, that is sold or otherwise disposed of by recipient within 12 months of the decedent’s death is considered a Long-Term holding and subject to maximum tax rate of applicable ordinary income

Question 8

WHAT are some item(s) that decrease the basis of property?

Answer 8

• Depreciation
• Return of Capital
• Recognized losses on involuntary conversions

Question 9

WHAT is the percentage depletion deduction for a tax year?

Answer 9

THE lesser of:

1. ) 10% of gross income; or
2. ) 50% of taxable income

Question 10

HOW do you determine the basis of property received in exchange for service?

Answer 10

THE Fair Market Value (FMV) of the property received

i.e. the fair market value of the property (received) must be included in gross income as compensation; and the basis of the property will be its fair market value

Question 11

WHAT items must be determined (i.e. must be known) in order to determine the MACRS deduction using the percentage tables?

Answer 11

• Recovery Period
• Placed in Service Date
• Basis of the Property

Question 12

WHAT does a Section 179 allow a taxpayer to elect?

Answer 12

TO treat all or part of the cost of Sec. 179 property as an expense

Note: the maximum amount that may be taken into account under this election for 2018 is $1,000,000

Question 13

HOW are Nonbusiness bad debts treated for tax purposes?

Answer 13

As Short-term Capital Losses (STCL)

Question 14

HOW should a company treat (for tax purposes) the accrued taxes for a local improvement?

Answer 14

Capitalize the taxes by adding them to the property’s adjusted basis

i.e. Taxes assessed for local benefit, are a betterment. They are added to the property’s adjusted basis (NOT deductible as tax expense)

Question 15

WHAT is considered the basis for inherited property?

Answer 15

THE FMV on the date of death

Note: If property acquired from a decedent is sold or otherwise disposed of by the recipient within 12 months of the decedent’s death, then the property is considered to have been held for more than 12 months

Note: There can be no carryover from a decedent to their estate

Question 16

WHAT is the holding period (i.e. basis of property acquired by gift) for the donee?

Answer 16

THE same as the basis in the hands of the donor

i.e. The holding period of property that has a transferred basis includes the holding period of the prior owner

Question 17

WHAT would be the tax rate for “Unrecaptured” Gain under Sec. 1250 for long-term capital gain(s)?

Answer 17

The 25% rate basket

i.e. this would be for gains not otherwise recaptured as ordinary income, attributed to prior depreciation of real property

Question 18

WHAT is the tax rule for determining loss (i.e. “Basis”) on the sale of property acquired by gift?

Answer 18

THE basis may not exceed the fair market value of the property at the date of the gift

Question 19

WHAT is the tax rule for determining gain (i.e. “Basis”) on the sale of property acquired by gift?

Answer 19

THE basis is the donor’s adjusted basis

Question 20

WHAT is the MACRS depreciation period (i.e. over how many years) for residential rental property placed in service?

Answer 20

27.5 years, straight-line method, mid-month convention

Question 21

WHAT is the maximum amount of loss a taxpayer loss can realize on the disposition of worthlessness Sec. 1244 stock?

Answer 21

$50,000

i.e. any loss over this would be considered a “capital loss”