R2 - Property Taxation

Question 1

What are the two types of property? Describe them

Answer 1

Real property: Land and all items permanently on them like pavement or buildings

Personal Property: Everything else (machines, truck, etc)

Question 2

What do you call it when property is sold for a profit and was held for more and one year or less than one year? What are the tax implication of each?

Answer 2

Long term capital gains are held for more than one year and taxed at smaller capital gains tax rates (preferential tax rates 1%,15%,20%)

SHort term capital gains tax are held for less than one year and taxed at ordinary rates

Question 3

When giving a property gift, basis stays the same on transfer. When does this rule not apply?

Explain scenarios

Answer 3

If the FMV is Less than the nbv on sale

1. Basis is FMV (loss) when sale is less than fmv
2. Basis is sale price (no gain/loss) when sale is between fmv and nbv
3. basis is nbv (gain) when sale is greater than nbv

Question 4

“holding period” when you sell a gift with fmv<nbv

why is this important?

Answer 4

1. sale>nbv: carry over donors holding period
2. sale<fmv: time since gift reciept
3. fmv<sale>nbv: no time since there is no gain or loss</sale>

holding period is important to identify short or long term capital gains which are taxed differently

Question 5

Tax benefits on inherited property? Carrying amount and holding period?

Answer 5

The recipient is allowed to use the FMV at the time of inheritance (referred to as “step up basis”) which mitigate the recognition of a gain or loss on sale.

The recipients receives a long term property, ALWAYS

Question 6

What is the alternate valuation date?

Answer 6

If inheritance date fmv is not used on inheritance asset; the recipient may uses the earlier:
- distribution date of asset
- six months after death

Question 7

What is the de minimis safe harbor rule?

How much?

Exception?

Answer 7

Company policy to expense low cost personel propery

up to 5,000 (if company is audited FS) or 2,500 if they don’t

If the item actually cost more than the above amounts, then it must be capitalize

Question 8

What makes a property capitilizable or expensable?

Answer 8

• if item is held for more than one year its capitalized
• if its less than one year or less than $200 it is expensed

Question 9

What is the basis for personal property converted into business property?

Answer 9

Lessor:
- Original cost plus improvements
- FMV

Question 10

Code for intangible property?

Answer 10

Section 197

Question 11

What can and cannot be included in the basis of a patent and copyright asset?

Answer 11

Can: Cost of devleopment, legal cost, and government fees

cannot: time invested

Question 12

Phase out rule on the depreciation for “organizational costs & Start-up costs”

Answer 12

$5,000 is reduced dollar-for-dollar when total cost exceed $50,000 for each item

Question 13

Describe Capital vs noncapital assets

what are their tax implications

Answer 13

Capital assets are investments or property for business or personal use. Non capital are inventory and QUICKER property (current assets).

Capital taxed at capital rates
noncapital taxed at ordinary rates

Question 14

In the “gain or loss” formula, identify a few examples for amount realized and Adjusted basis

Answer 14

Amount Realized: money received, cancellation of debt, fmv property, minus selling expenses

Adjusted basis of asset sold: purchase (cost), gift (rolled over or fmv), inherited (step up to fmv)

Question 15

How much can a taxpayer exclude on the GAIN of sale of QSBS?

What does QSBS stand for?

What qualifies as QSBS?

Answer 15

• greater of $10 m or 10X the taxpayers basis in stock
• Qualifies small Business Stock
• <$50m basis & held >5 years

Question 16

For individuals, how much capital loss can offset ordinary, passive, or portfolio inc.?

What if it goes over that amount?

Exclusion?

Answer 16

• $3,000
• indefinite carryforward
• carry back not allowed on individuals

Question 17

pick up -=–> worthless stock

Question 18

What are the main Capital Gain difference between individuals and C Corps? *Forget the carrybacks and carryforward for now

Answer 18

C corp capital gains cannot offset ordinary income and C corp capital gains have NO distinction between LT or ST

Question 19

3 non deductible losses? Describe

Answer 19

Wash sale - Loss of stock within 30 days (really a 60 day window)
Related Party Transaction -
Personal Losses -

Question 19

C corp Capital gains Carry back and carry forward rulse

Answer 19

• Back 3 Forward 5

Question 20

Formulas for washsale:

• Basis
• Nondeductible loss

Answer 20

Repurchase price + non deductible loss on the wash sale

• the wash sale works like this:
  1. you purchase stock
  2. you sell stock at a loss at a future date but repurchase that same stock either 30 days before or 30 days after the loss

Question 21

MACRS Declining Balance Method for years 3,5,7,10 and 15,20

Answer 21

3,5,7,10: 200%

15,20: 150%

not important to know since we will have charts provided

Question 22

MASC YEARS AND CATEGORY (summary)

Answer 22

3: tools
5: Automobile, light trucks, computers
7: Furniture, Machinery
10: Boat and other transportation
15: interior improvements or to land
20: Farm building and sewers

Question 23

What is the half year convention in macrs

Answer 23

Basically, a special marc percentage to first and last year. Got property half way into year and so disposed half way in last year

Question 24

when do you use the midquarter convention?

How do you determine the table to use for this calculation

Answer 24

• When 40% of personal property is placed in service in the last quarter of the year
• The table is used depending on when the property was disposed

Question 25

What are the two types of property?

Which follows two different standards for macrs and uses straight line?

What are those two for?

How long can you depreciate both of those properties?

How is it calculated?

Answer 25

1. Personel and real
2. Real Property
3. Residential and nonresidential
4. Residential (27.5 Straight line)
   Nonresidential (39 straight line)
5. Mid month convention

Question 26

What does section 179 deduction apply too?

Exception

Answer 26

• Personal Property
• improvements to NONRESIDENTIAL real property

Question 27

Section 179 deduction amount*

phase out

Answer 27

$1,160,000

Dollar-per-dollar if property purchased exceeds $2,890,000

Question 28

Bonus Depreciation YEAR & ALLOWABLE BONUS DEPREICATION PERCENTAGE

Answer 28

2018-2022: 100%
2023: 80%
2024: 60%
2025: 40%
2026: 20%

Question 29

How are intengible items ammortized?

How long?

what method, explain

Answer 29

• Straight line
• 15 years
• full month - full for acquisition and full for disposition

Question 30

GAAP vs Tax: Amortization

Answer 30

TGAAP: Impairment

Tax: 15 year life

Question 31

Purchase stock: basis LT
Stock Dividend: recent ST
What is the holding period for the sale of this stock?

Answer 31

Long term

Question 32

For inherited property, when the alternative date is elected, when is the basis assessed?

Answer 32

The earlier of:

• When the recipient receives the property
• Six months after the date of death

Question 33

Describe 179 deduction limit and what does the phase out apply to?

Answer 33

• Cannot deduct 179 cannot go below the taxable income amount
• the phase out is dollar-per-dollar based on the qualifying business expense

Question 34

propetyy gift transfer rule for holding period (for rolling over)

Answer 34

If the donor’s cost basis rolls over to the recipient, the donor’s holding period also rolls over.