R1 Capital Gains & Losses and ESO Flashcards
How is the basis of inherited property determined? How is the holding period recognized?
- The basis is the lower of FMV at death date or FMV at alternative valuation date (if elected) which is the earlier of:
- 6 months from date of death
- disposal date if less than 6 months
*The holding period is automatically long term for all inherited property
How is the donee’s basis of a gift determined? How is the holding period determined?
- The donee’s basis of a gift is the rollover NBV from donor
- If sale is greater than NBV the gain is the difference between sale price and NBV
- If sale is less than the FMV the loss is the difference between sale price and FMV
- If the sale is between NVB and FMV no gain or loss sale price=basis
- The holding period is the same as the donor if NBV used, if FMV used the holding period is the date of gift
When is gain not taxed?
H - Homeowner’s exclusion (500,000 or 250,000)
I - Involuntary conversions
D - Divorce settlement property
E - Exchange of like-kind business/investment tangible assets
I - Installment sales
T - Treasury and capital stock transactions by corporation
Identify the major tax provisions of involuntary conversion of property?
Gain may be deferred if insurance proceeds are reinvested in property that is similar similar or related in service or use within two years for personal property or three years for business property.
A realized gain exists when insurance proceeds are greater than the adjusted basis in the converted property but it is not recognized, the amount recognized is the excess proceeds over the replacement cost.
Basis of new asset is replacement cost lest the gain not recognized.
Losses are recognized and the basis is replacement cost.
Holding period includes the original property held.
What is the exclusion amount on personal residence?
$500,000 for married filing jointly
$250,000 for single or married filing separate
Identify the criteria for the exclusion provision on the sale of personal residence?
- Taxpayer must have owned and used the residence as principal home for at least 2 years in the last 5 years ending on the date of sale or exchange.
- Either spouse for a joint return can qualify for the ownership requirement but both must meet the use requirement.
- Taxpayers may be eligible for a partial (prorated) exclusion of the sale is due to change of employment, health, unforeseen circumstances, or claimed within the last 2 years or fail to meet the own or use requirement.
- No age limit, rollover to another house requirement.
- Renewable every 2 years.
Name the criteria for a classification as a like-kind exchange
- Tangible personal or real property
- Used in the trade of business
- Held for investment (except inventory, stock, securities, partnership interest and real property in diff. country)
In like-kind exchange, what is the basis of the property received?
Old NBV + boot paid - boot received + gain recognize = new NBV
Recognized gain is the lesser of gain realized or boot received
Identify the nondeductible losses
W - Wash sales
R - Related party transactions
a
P - Persona loss
What is the tax treatment given to wash sales?
- Losses are disallowed if the same security is bought 30 days before or after sale
- Basis = purchase of new security plus wash loss
- Gains are taxable and the new security basis is the purchase price
- Date of acquisition is the date of original security
What is the tax treatment for sales to related parties?
- No deduction is allowed
- On later resale of 2nd party any gain recognized is reduced by the 1st owner disallowed loss but not below zero
- Basis of new owner based on the sale price of that owner:
- rollover NVB if sold above the 1st owner NBV to get gain
- Purchase price if sold below the purchase price to get loss
- If sold in between no gain or loss sale price = purchase price
- *In-laws are not related party
- *Always report gains between related party
What are the corporate capital gain/loss rules for C corporations?
Net capital gains (S/T and L/T)
Corporate net capital gains are treated as ordinary income
Section 1231 are entitle to capital gain treatment to offset capital losses
Net capital losses (S/T and L/T)
Corporate net capital losses are carried back 3 carried forward 5
Can be deducted from 1231 capital gains
Describe the employee and employer taxation of non qualified employee stock options
Non qualified with readily ascertainable value taxable when granted and deductible by employer basis is exercise price plus any amount previously taxed on. OI= RAV x # of shares
Non qualified without readily ascertainable value taxable when exercised and deductible by employer basis is actual exercise price plus any ordinary income recognized. OI= FMV less option price
Holding period with RAV = grant date
Holding period without RAV = exercise date
Describe the employee employer taxation of ISO
ISO not taxed as compensation basis is the exercise price plus cost paid. Subsequent sale is capital gain or loss.
- exercise price not less than FMV at date of grant
- cannot own 10% or more in voting rights
- stock must be held 2 years from grant and 1 year from exercise
- AMT preference of excess FMV on exercise date less purchase price
Not deductible for employer
Describe the employee and employer taxation of ESPP
ESPP are not taxed as compensation basis is exercise price plus cost. Subsequent sale is capital gain or loss.
- option price cannot be less less than the lesser of 85% of FMV of the stock when granted or exercised
- cannot have more then 5% in voting rights
- must be held for 2 years from grant date and 1 year from exercise date
- exception if option price is less than FMV on grant date ordinary income is recognized as the lesser of the difference of FMV when sold and exercise price or difference exercise price and FMV when granted
Not deductible to employer
