R3 Flashcards
Capital Assets include:
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
NCL deduction for individuals is limited to:
3,000 per year with the excess carried forward indefinitely (1,500 for MFS)
Note: limited to the lesser of NCL or 3000
Short-term Capital Gains and Losses
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)
Long-term Capital Gains and Losses
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.
Section 1244 loss is what kind of loss
Ordinary loss NOT capital
A short sale of stock results in what kind of asset?
Capital Asset and the holding period is based on the date the short sale is executed
When can you deduct a non business bad debt?
When the debt is totally worthless
Capital Losses for a corporation carry back/carry forward rule
Carry back 3 years and forward 5 years
If a corporation has net capital gains, they are taxed at
ordinary (corporate) income tax rates
What is a 1231 asset?
Depreciable personal property and real property used in a trade or business and held for over 12 months
Net 1231 losses are treated as
ordinary losses
Section 1245 Depreciation Recapture
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
What is a Section 1245 asset?
Depreciable personal property assets used in a trade or business for more than one year
What is a Section 1250 asset?
Depreciable real property used in a trade or business for more than one year
Unrecaptured Section 1250 gain
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
Installment Method
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
Installment Sale Steps
- Calculate gain = Sale Price - Adjusted Basis
- Calculate GP %
- GP% * Cash received
Gross Profit on Sale
Cash received
+ Debt relief
- Selling Expenses
= Amount Realized
- Adjusted Basis
= Gain realized/Gross Profit
The sale of real property by individuals does not result in…
depreciation recapture gain
Section 291
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
If personal property (machinery & equipment), what determines the character of the gain
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.
If depreciable real property (land + building) and taxpayer is an individual, what determines the character of the gain
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.
If depreciable real property (land + building) and taxpayer is a C Corporation, what determines the character of the gain?
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.
Treatment of net 1231 gain
Treat as ordinary to the extent of unrecaptured 1231 losses in the previous 5 years. The rest is treated as long term capital gain
Treatment of net 1231 loss
Treat as a section 1231 (ordinary) loss. Treat like extra depreciation you should have been allowed
Under the related party rules, stock owned by a taxpayer’s family members is treated as if
it is constructively owned by the taxpayer
How much of a partnership must one own in order to be considered a related party to the partnership
more than 50%, any losses from related party transactions are disallowed
