R3 Flashcards
Gain/loss realized equation
Amount realized (FMV of new real property + boot received) - adjusted basis of real property given up - boot paid
Gain/loss recognized equation
The lesser of realized gain or boot received
Does the basis of an involuntarily converted building include the removal & cleanup costs?
Yes
If the cost of an asset qualifies for the section 179 election, what would the difference be regarding the immediate expensing of this asset versus the depreciation of this asset over its life?
There is no difference. The total amount that is deductible over time is the same for both cost recovery methods
How do you calculate the deferred gross profit when the sale qualifies to be reported on the installment basis?
You must first find the gross profit percentage. Profit divided by sales. Use the given amount of collections multiplied by the gross profit percentage.
A taxpayer owned a rental home with an $85,000 fair market value, a $70,000 adjusted basis, and a $60,000 mortgage. The taxpayer exchanged the rental home for $12,000 in cash plus a rental property with a $65,000 fair market value and a $52,000 mortgage. What amount of gain, if any, must be recognized by the taxpayer on the exchange?
Fair market value of new property received $65,000
Plus cash boot received 12,000
Plus net debt relief boot received (60,000 debt relief - 52,000 that assumed) 8000
Total amount realized equals 85,000
Less adjusted basis of property given up (70,000)
Gain realized $15,000
Gain deferred equation
Gain realized less gain recognized
Basis of new property equation
Fair market value of property received less deferred gain plus deferred loss
How do you find the gross profit when using the installment sale method?
The gross profit will be the amount realized less selling costs less the adjusted basis of the property sold
In the current year, Vinton exchanged unimproved land for an apartment building. The land had a basis of $300,000, a fair market value of $420,000, and was encumbered by $100,000 mortgage. The apartment building had a fair market value of $550,000 and was encumbered by $230,000 mortgage. Each party assumed the others mortgage. What is Vinton‘s basis in the apartment building?
Fair market value of new apartment building received $550,000
Less adjusted basis of unimproved land given up (300,000)
Less net debt assumed boot paid (230,000 that assumed - 100,000 debt relief) (130,000)
Gain realized 120,000
Gain recognized (lesser of 120,000 gain realized and 0 boot received) 0
Gain deferred (120,000 gain realized - 0 gain recognized) 120,000
Basis of new property (550,000 FMV of new property - 120,000 gain deferred) 430,000
How do you report revenue 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 on the sale to determine the revenue (which retains its character is capital gain ordinary income, depending on the transaction).
What is unrecaptured section 1250 gain?
Gain is recaptured as ordinary under section 1250 to the extent of the depreciation in excess of straight line. The remaining amount is the straight line depreciation and this portion of the gain is considered to be unrecaptured section 1250 gain
What are considered section 1231 assets?
Section 1231 assets are comprised principally of depreciable personal and real property used in the taxpayer’s trade or business and held for over 12 months. Trade or business property in capital assets held over 12 months that have been involuntarily converted are also included
Describe Section 1245.
Section 1245 actually only requires that the lesser of the depreciation taken or the gain recognized to be recaptured.
What is the general rule regarding the basis of the property received from the transferor/shareholder?
The basis is the greater of (1) adjusted netbook value of the transferor/shareholder, plus any gain, recognized by the transferor/shareholder or (2) debt assumed by the corporation.
