Property_Transactions Flashcards
What is the** initial** basis in property?
** Cash paid**
**+ Purchase expenses- **closing costs, settlement fees (title fees, installation of utility services), legal fees (title and deed fees) recordings fees, survey fees
+ Debt assumed (mortgage)
+ Any amounts the seller owes that the buyer agree to pay (back taxes and interest , recording, mortgage fees)
= Basis
What is the recipient or donee’s basis and holding period on gifted property?
- Sold at a GAIN: use **donor’s basis+ any gift taxed paid attributable to the gift & **carryover holding period **
- Sold at a LOSS: use lesser of donor’s basis or FMV at time of distribution (time of gift) - **holding period when the gift was received **
- Sold in BETWEEN donor’s basis and FMV: No gain or loss
What is the basis and holding period of inherited property?
-
Basis:
- FMV at date of death OR
- Alternate valuation date (6 months later)
- Exception if alternate date is elected by property is sold/transfer before 6 month window; use FMV at date of sale/transfer.
- Property inherited is alway LT property regardless of how long it is held by the recipient.
What is the ** basis and holding period on a stock dividend**?
- Basis stock dividend = FMV at date of distribution
- non taxable - basis of orignal stock is allocated relative to the FMV at the time of distribution
- Holding period of new stock received from a dividend takes on the holding period of the original stock
What properties are eligible for like-kind exchange treatment?
- Tangible Investment/Business property
- NOT intangible property
- Real for real OR Personal for Personal
- US real property only
What is BOOT in a like-kind exchange?
- Cash received + unlike property received
- Relief of debt that exceed the debt assumed
What is an involuntary conversion? When does it not result in a gain?
- Occurs when you receive money for a property involuntarily converted
- There is no gain if you reinvest the proceeds completely in the statutory limits - start earlier of date of disposition or threat of condemnation - before the close of taxable year
- 2 years - destruction or theft
- 3 years - Governement condemnation or eminent federal disaster
- 4 years - Conversion in connection with a declared federal disaster
- If proceeds not completely reinvested; GAIN is LESSER of realized gain or amount not reinvested
- Loss Schedule A - theft or casualty loss
What are the requirements for exclusion of gain on a primary residence? How are losses treated?
- Must live there 2 out of 5 years
- Loss on sale of home is NOT deductible
- Limit 250K single / 500K MFJ
What is a wash sale?
- Taxpayer acquires same stock or securities within 30 day before or after selling stock or securities at a loss
- Disallowed loss
- loss added to basis of new stock
- New stock takes on date of acquisition of old stock
Who is considered a related party in a property transaction? How does it affect the transaction?
- Related parties: Ancestors; siblings; spouse; descendants; partnership or corporation where direct and constructive ownership is > 50%
- Seller cannot take a loss on sale to a related party; but gain is always recognized
- Related party gets to use the disallowed loss when they sell - if gain is recognize to the extent of disallowed loss
- Related party’s holding period begins when the related party acquire the property
- In-laws, uncle are NOT related parties
How are capital losses taken in a corporation?
- capital losses only offset capital gains
- **Carryback 3 years **
- if you elect NOT to carryback; you lost the option in the future Carry forward 5 years
- only as STCL
What assets are Ordinary and Capital assets?
-
ORDINARY assets
- Inventory;
- Business asset held ≤ year
- Self created artistic works
- Accounts Receivable - arising from sales
- Covenant not to compete - are taxed as ordinary income in the year received
- Ordinary tax rate
-
CAPITAL assets
- include property held for investment and personal use
- non business asset
- do not qualify as ordinary or 1231 assets
- Goodwill IS a capital asset
What are the steps in applying a capital gain or loss?
- Net all STCG and STCL
- Net all LTCG and LTCL
- Add together
- Deduct $3,000 loss ONLY for individual
- A net loss in any rate group is applied to reduce the net gain in the highest rate group first (e.g., a net short-term capital loss is applied to reduce any net gain from the 28% group, then the 25% group, and finally to reduce gain from the 15% group).
How much ordinary income can be offset by an INDIVIDUAL’s capital losses?
- $3,000 per year
- Unused is carried forward and taken $3,000 each year
- No carryback is allowed
- A loss resulting from a nonbusiness deposit in an insolvent financial institution is generally treated as a nonbusiness bad debt deductible as a short-term capital loss. However, subject to certain limitations, an individual may elect to treat the loss as a casualty loss or as a miscellaneous itemized deduction
Which property is governed by section 1231 assets - Non-current business assets?
- Asset used in the trade of business and held > 1 year
- **Depreciable or amortizable property **
- Land use in business, PP&E
- Casualty, theft or condemnation of property used in business
- Inventory is NEVER 1231 Property (also : property held for sale to customers, as well as accounts and notes receivable arising in the ordinary course of a trade or business, copyrights, literary, musical, and artistic compositions held by a taxpayer whose personal efforts created such property are excluded )
