R3

Question 1

What assets does Sec 1231 apply to?

Answer 1

1. Applies to Depreciable Real and personal property
2. Used in business
3. Held for more than 1 year

STOCK does not apply (bc it is a capital asset)

Question 2

What is the Sec 1231 Gain taxed as vs Sec 1245?

Answer 2

1231 = Cap gain rates
1245 = Ord income

Question 3

How would you calc the types of gains for the following PP&E business asset held longer than 1 year:

Acquisition cost = 28
NBV asset when sold= 16
Sales price = 30

Answer 3

Overall gain realized –> 30 - 16 = 14

Section 1245 Gain –> 28(Acquisition price) - 16 (NBV) = 12 depreciation

Sec 1231 G –> 30 (SP) - 28 (Acquisition cost)

Question 4

What is the 5 year look back rule?

Answer 4

1. If there were any Sec 1231 losses taken as ordinary losses in the last 5 years, any new Sec 1231 gains must first be used to “pay back” previous Sec 1231 losses –> any new gains will be ord gains
2. Once payback is complete –> any additional Sec 1231 gains will be classified as cap gains

Question 5

What is the basis of inherited property to the beneficiary?

Answer 5

Fair Market Value of the property at the date of the decedent’s death. (or alt valuation date, if alt valuation is used for determining the value of estate)

Question 6

How do you determine the basis of gifted property?

Answer 6

Basis = donor’s rollover basis

Gain = SP - Donor basis = LT gain

Question 7

What is the classification of Sec 1244 loss?

Answer 7

Ordinary loss

Question 8

In a LKE transaction - how is the real and recognized gain or loss calculated? How is the basis in new property calculated?

Answer 8

FMV of prop rec
- Basis of prop given up
+ boot
-boot (mortg assumed)
——————————————-
Realized G/L

Rec Gain = Gain up to Boot
Rec loss = 0

Deferred G/L = Realized - REc

Basis in new prop = FMV of new prop +Deferred Loss - Deffered gain

Question 9

How are nonbusiness bad debt losses treated in the year they become totally worthless?

Answer 9

STCL

Question 10

Under the Installment method, calculate:
1. Gross Profit
2. GP %
3. Taxable Gross Profit (amount in GI)

Answer 10

1. GP = Sale on Installment - Cost
2. GP % = GP/Sale on Installment
3. Taxable Gross Profit = Collections * GP %

Question 11

For an individual taxpayer - define capital assets.

Answer 11

Either:
1. Stocks and bonds OR
2. Property held for personal use and/or LT investment

Question 12

How are G/L reported for personal prop?

Answer 12

ONLY Gains are reported on Personal Prop
Losses are WRaP and thrown away

Question 13

What is the netting process of LT and ST CG/CL

Answer 13

1. Net per type (i.e STCG-STCL, LTCG- LTCL)
2. IF both classes net to same CG/CL –> report separate since both are taxed separately (i.e STCG and LTCG –> report both)
3. IF both are different (i.e STCG and LTCL remaining ) –> net both and which ever type is greater–> CFWD that type

i.e STCG 10 - LTCL 5 = STCG 5

Question 14

What is the loss deduction rule for CL for individual? What is the rule for carryover?

Answer 14

Can deduct up to $3k from ord income

NO CBCK, CFWD indefinitely

Question 15

What are the tax rates on CG from sale of stock held over 1 year?

Answer 15

TI < 40K(S)/80K(MFJ) –> $0 of Capital Gain taxed
TI b/n 40k/80k and 450K –> taxed @ 15%
TI > 450K –> tax will increase

Question 16

What are the capital loss rules for a C Corporation?

Answer 16

1. May not deduct net capital losses from ordinary income
2. CBCK 3 yrs CFWD 5 yrs
3. NCL can offset up to NCG

Question 17

What are the capital gain rules for C corporation?

Answer 17

1. NCG added to ord income and taxed at reg tax (no distinguishing between ST and LT)
2. Net sec 1231 gain entitled to CG treatment

Question 18

When purchasing property:

1. What is the basis of property purchased
2. What is the Holding period

Answer 18

1. All amounts to purchase property, prepare the property to use and place into service
2. HP begins at date the prop is acquired

Question 19

When receiving gifted property:

1. What is the basis of prop rec
2. Basis for depreciation
3. Holding period

Answer 19

1. GR: donor rollover basis = NBV, increase any gift tax paid

EXCEPTION: IF FMV at date of gift < rollover cost of donor
–> Basis is determined on future selling price

1A. Sale of gift @ price > donor basis –> basis = donor basis. Gain = SP - Donor Basis

1B. Sale of gift @ price < FMV –> basis = FMV when rec. Loss = FMV - SP

1C. FMV <SP< Rollover basis –>$0 G/L

2. LESSOR OF:
   Donor adj basis OR FMV
3. Usually donor basis UNLESS exception where SP<FMV –> HP starts at date of gift

Question 20

When receiving inherited property:

1. What is the basis of prop inherited
2. Holding period

Answer 20

1. GR: FMV date of death
   EXCEPTION –> Alt valuation. = earlier of: 6mths OR Date of distribution/sale of asset
2. Always Long term prop

Question 21

What property is considered “Qualifying property” for a Like Kind exchange?

Answer 21

Real property used in trade or biz OR held for investment that is exchanged for other real prop used in trade or biz OR held for investment

Question 22

What is the maximum allowable Sec 179 deduction for 2023? when is there a p/o

Answer 22

1,160,000

reduced dollar per dollar for qualified property placed in service greater than $2.89M

1.16M - Amount over 289 = allowable deduction

Question 23

What depreciation convention is used for property, not real property?

What convention is used for real property?

Answer 23

Half year convention is used for property unless more than 40% of basis of property is placed into service during the last 3 months of the tax year –> mid quarter applies

Real proper (building) –> mid month

Question 24

What is the De minimis safe harbor rule for expensing personal prop and what is the impact of an applicable financial statement?

Answer 24

This applies when there is a written policy to expense certain property as of the beg of year

IF there is an Applicable Financial Statement –> De minimis rule allows company to deduct up to items costing $5000

IF NO AFS –> allows expense up to $2,500

IF cost over that –> not deductible

Question 25

How would you calc the following for an involuntary conversion:

1. Realized Gain
2. Recognized Gain
3. Basis of new warehouse

Answer 25

1. Realized Gain = Insurance proceeds - adj basis of old prop
2. Recognized Gain = Insurance proceeds - amount of new property
3. Basis = Cost of new property - Gain not recognized (Real - Rec Gain)

Question 26

If a security becomes worthless in the current tax year - what day will it be treat sold/exchanged on?

Answer 26

Treated as being sold/exchanged on last dat of current tax year

Question 27

In an involuntary conversion - when does the holding period begin for the asset?

Answer 27

At the day when the original asset was acquired

Question 28

If gifted stock is given to RP at a Gain - what is the basis?

Answer 28

Basis is the Rollover basis , long term