r2-m1 Flashcards
Purchase Property
General Rule
Use purchase price for initial basis; adjusted basis is initial basis less accumulated depreciation. Holding period begins when property is acquired
Gifted Property
General Rule
Use donors basis and holding period. If lower FMV at date of gift and if later sells at a loss, use FMV at date of gift as basis; holding period begins at date of gift. No gain or loss recognized if subsequent selling price is less than donors basis and more than lower FMV at dat of gift.
Inherited Property
General Rule
FMV at date of death, can elect to use FMV on alternate valuation date. The holding period is automatically long term
Property with a useful life of more than one year is…
capitalized
How are improvements to property treated?
Capitalized. Costs to maintain property that do not add value or extend useful life are expensed as repairs and maintenance.
How are Material and Supplies treated?
Expense if costs is $200 or less or if it is consumed within one year
De Minimis Rule
If a taxpayer has a policy of expensing low cost-personal property items for financial accounting purposes and has applicable financial statement, they can also expense (deduct) for income tax purposes personal property items that cost no more than $5,000 (or items that cost no more than $2,500 if the taxpayer does not have an AFS)
Property Converted From Personal to Business Use
General Rule
For depreciation purposes, tax basis is the lesser of the original cost basis plus improvements or FMV on date of conversion. For gain/loss purposes, tax basis is the adjusted basis at date of sale (if a gain) or the lesser of the adjusted cost or FMV at date of conversion less any accumulated depreciation.
Intangible Property
General Rule
Use cost or purchase price for initial basis; adjusted basis is initial basis less accumulated amortization.
Intangible Property
Organizational costs and start up costs
Can expense first $5,000 of organization costs and the first $5,000 of start up costs. Any costs not immediately expensed are amortized.
If the executer of a decedents estate elects the alternate valuation date, the estate must be valued as of how many month?
6 or the date of distribution/sale
What is the step up basis when inheriting property?
When someone A dies and B inherits the property, B’s basis is stepped up at the FMV today. it can also step down
How long of a holding period is considered long term?
1 year
How to calculate realized gain or loss?
The amount realized less adjusted basis of the asset sold
What is the amount realized?
Cash received, FMV of property and or services received, and debt assumed by the buyer; reduced by selling expenses
What is adjusted basis?
The original basis less the accumulated depreciation
What are capital assets?
Assets held for investment and personal use assets
What are noncapital assets?
Inventory, accounts receivable, trade/business use assets
How are Short term capital gains (STCG) taxed?
Taxed at ordinary tax rates
How are Long term capital gains (LTCG) taxed?
Taxed at 0, 15, or 20% preferential tax rate.
