Property Transactions: Special Topics

Question 1

WHAT amount of Gain is recognized on a like-kind exchange?

Answer 1

THE lesser of gain realized or boot (i.e. Cash) received

NOTE: The basis of property received in a like-kind exchange is equal to the basis of the property transferred minus the amount of boot received

Question 2

WHAT items are included in Section 1231 property?

Answer 2

ALL real or “depreciable” property used in the taxpayer’s trade or business and held more than 1 year

Question 3

WHAT type of disposition of depreciable property would trigger recapture?

Answer 3

AN Installment sale

WHy? - Because in an installment sale, any ordinary income, because of the depreciation recapture rules, must be recognized upon the sale

Note: Only capital gain is allowed to be reported on the installment method

Question 4

What types of items are excluded from qualifying as a “like-kind” exchange of an investment asset for a similar asset?

Answer 4

• Convertible preferred stock
• Partnership interests
• Convertible debentures

Question 5

WHAT is the rules for depreciable property under the Sec. 1245 recapture rules?

Answer 5

ANY gain realized, to the extent of the lesser of gain realized or depreciation taken, is characterized as ordinary income

Question 6

WHAT would be the type(s) of relatives that allow for losses from sales and exchanges recognized for tax purposes?

Answer 6

A father-in-law and a son-in-law

WHY? - Because they are NOT considered related parties for purposes of Sec. 267, so losses between the two may be recognized

Question 7

WHAT are the rules for the installment method for dealers under current law (i.e. Sec. 453(b)(2)])?

Answer 7

IT is disallowed for dispositions of property by dealers

i.e. This includes any disposition of personal property, if the person regularly sells such personal property on the installment plan

Note: Exceptions are made for property used or produced in the trade or business of farming (and, if so elected, sales of residential lots or timeshares, subject to interest payments on the deferred tax)

Question 8

HOW are Liabilities treated in a like-kind exchange transaction?

Answer 8

AS “money paid or received”

i.e. liabilities are not qualified property and are treated as money paid or received

Difference in the exchange would be the “Net boot
paid or received

Question 9

HOW would you calculate the gross profit percentage under the qualified joint interest rules for any interest in property held by the decedent or the decedent’s spouse?

Answer 9

BY identifying that person’s cost of their half of the property with certain adjustments

• Decreasing the cost by any deductions allowed and Increasing the reduced cost by their basis in the half you inherited

Question 10

WHAT event would accelerate the installment obligation before all payments are received?

Answer 10

IF the buyer gives the property away within 2 years of the installment sale

Question 11

WHAT are the rules for a gain realized on the disposition of Sec 1245 property?

Answer 11

Gains realized on the disposition of this property is recaptured as ordinary income to the extent of the lesser of:

(1) Depreciation taken OR (2) Realized gain

Question 12

True or False.

Land is Sec. 1250 property.

Answer 12

FALSE.

Land is NOT Sec. 1250 property, but leases (on Land) are Sec. 1250 intangible properties.

Note: Section 1250 property includes depreciable real property acquired after 1986

Question 13

WHAT is the threshold for charging Interest under Sec. 453A on deferred tax of nondealer installment sales?

Answer 13

Over $150,000

i.e. Interest is charged under Sec. 453A on the deferred tax of nondealer installment sales of over $150,000 involving any type property

Question 14

WHAT would be considered “Qualified small business stock” (i.e. Section 1202 stock) for purposes of applying rollover and exclusion rules?

Answer 14

• Originally issued after August 10, 1993
• Acquired by original issue in exchange for money or other property or as pay for services
• Corporation’s gross assets do not exceed $50 million at the time the stock was issued

Question 15

WHAT would be considered the “Contract Price” in a Property Transaction?

Answer 15

The total amount the seller will ultimately collect from the buyer

Note: If debt assumed by the buyer exceeds the adjusted basis of the property, such excess (reduced by selling expenses) is treated as a payment and must be included both in the contract price and in the first year’s payment received

Question 16

HOW much can an individual taxpayer exclude from their gross income under Sec. 1202(a) - gain from the sale or exchange of qualified small business stock?

Answer 16

100%

i.e. An individual taxpayer may exclude up to 100% of any gain from the sale or exchange of qualified small business stock (held for more than 5 years) from their gross income