R3

Question 1

Capital Assets include:

Answer 1

personal automobile of the taxpayer
furnitures and fixtures in the home of the taxpayer
stocks and securities of all types (except those held by dealers)
personal property of a taxpayer NOT used in a trade or business
real property NOT used in a trade or business
interest in a partnership
goodwill of a corporation
copyrights, literary, musical or artistic compositions PURCHASED
other assets held for investment

Question 2

NCL deduction for individuals is limited to:

Answer 2

3,000 per year with the excess carried forward indefinitely (1,500 for MFS)

Note: limited to the lesser of NCL or 3000

Question 3

Short-term Capital Gains and Losses

Answer 3

If there are short-term capital losses they are offset by gains in this order:

short-term gains (taxable at ordinary rates)
long-term gains (28% group)
long-term gains (25% group)
long-term gains (15% group)

Question 4

Long-term Capital Gains and Losses

Answer 4

If there are any long-term capital losses (including LT capital loss carryovers) from the 28% group - first offset by net gains from 25% group then net gains from 15% group.

If there are any long-term capital losses (including LT capital loss carryovers) from the 15% group - first offset by net gains from 28% group then net gains from 25% group.

Question 5

Section 1244 loss is what kind of loss

Answer 5

Ordinary loss NOT capital

Question 6

A short sale of stock results in what kind of asset?

Answer 6

Capital Asset and the holding period is based on the date the short sale is executed

Question 7

When can you deduct a non business bad debt?

Answer 7

When the debt is totally worthless

Question 8

Capital Losses for a corporation carry back/carry forward rule

Answer 8

Carry back 3 years and forward 5 years

Question 9

If a corporation has net capital gains, they are taxed at

Answer 9

ordinary (corporate) income tax rates

Question 10

What is a 1231 asset?

Answer 10

Depreciable personal property and real property used in a trade or business and held for over 12 months

Question 11

Net 1231 losses are treated as

Answer 11

ordinary losses

Question 12

Section 1245 Depreciation Recapture

Answer 12

Gains on the sale of depreciable personal property will be ordinary to the extent of depreciation taken

Note: the lesser of depreciation taken or the gain recognized may be recaptured

Question 13

What is a Section 1245 asset?

Answer 13

Depreciable personal property assets used in a trade or business for more than one year

Question 14

What is a Section 1250 asset?

Answer 14

Depreciable real property used in a trade or business for more than one year

Question 15

Unrecaptured Section 1250 gain

Answer 15

A gain on the sale of a section 1250 asset is unrecaptured section 1250 gain to the extent of straight line accumulated depreciation taken on the asset. Any gain in excess of the unrecaptured section 1250 gain is section 1231 gain

Question 16

Installment Method

Answer 16

Under the installment method, revenue is reported over the period in which the cash payments are received. The amount of cash received is multiplied by the gross profit percentage.

Note: the gain retains it character depending on the transaction

Question 17

Installment Sale Steps

Answer 17

1. Calculate gain = Sale Price - Adjusted Basis
2. Calculate GP %
3. GP% * Cash received

Question 18

Gross Profit on Sale

Answer 18

Cash received
+ Debt relief
- Selling Expenses
= Amount Realized
- Adjusted Basis
= Gain realized/Gross Profit

Question 19

The sale of real property by individuals does not result in…

Answer 19

depreciation recapture gain

Question 20

Section 291

Answer 20

Depreciable real property for a C Corporation

291 Recapture = 20% of the lesser of the recognized gain or accumulated straight-line depreciation taken

Note: the other 80% will be a section 1231 gain

Question 21

If personal property (machinery & equipment), what determines the character of the gain

Answer 21

Section 1245 which says that gain will be ordinary to the extent of depreciation taken on the asset. Any remaining gain is a 1232 gain.

Question 22

If depreciable real property (land + building) and taxpayer is an individual, what determines the character of the gain

Answer 22

Section 1250 which says that unrecaptured section 1250 gain is equal to the lesser of the recognized gain or accumulated depreciation on the asset taxed at a max rate of 25%. Any remaining gain is a 1231 capital gain.

Question 23

If depreciable real property (land + building) and taxpayer is a C Corporation, what determines the character of the gain?

Answer 23

Section 291 which says gain is ordinary income to the extent of 20% of the lesser of the recognized gain or accumulate depreciation on the asset. Any remaining gain is 1231 gain.

Question 24

Treatment of net 1231 gain

Answer 24

Treat as ordinary to the extent of unrecaptured 1231 losses in the previous 5 years. The rest is treated as long term capital gain

Question 25

Treatment of net 1231 loss

Answer 25

Treat as a section 1231 (ordinary) loss. Treat like extra depreciation you should have been allowed

Question 26

Under the related party rules, stock owned by a taxpayer’s family members is treated as if

Answer 26

it is constructively owned by the taxpayer

Question 27

How much of a partnership must one own in order to be considered a related party to the partnership

Answer 27

more than 50%, any losses from related party transactions are disallowed