R3- capital

Question 1

Installment sale

Answer 1

he installment method is a method of accounting enabling a taxpayer to spread the recognition of gain on the sale of property over the payment period. Under this procedure, the seller computes the gross profit percentage from the sale (i.e., the gain divided by the contract price) and applies it to each payment received to arrive at the gain to be recognized.

Question 2

Adjusted basis

Answer 2

When question says adjusted basis, assume that’s the basis.

Question 3

Services paid for in property

Answer 3

The general rule is that when services are paid for in property (any compensation other than cash), the fair market value of the property at the time of receipt must be included in income.

Question 4

Real vs personal property

Answer 4

Real property is land and anything permanently attached to the land or very closely and exclusively associated with the use of the land. These items are immovables. Growing trees and buildings are real property.
Personal property is movable (although it may be difficult at times!).

Question 5

Taxable estate

Answer 5

In computing the taxable estate for estate tax purposes, a deduction is allowed for bequests to charitable organizations, and there is no percentage limitation.
A deduction is also allowed for funeral expenses, reducing the taxable estate.

Question 6

like kind exchanges

Answer 6

For a tax-free exchange with the objective of postponing a gain or loss, property held for use in a trade or business, or for investment, must be exchanged for property of like kind, which will then be held for business or investment purposes.
Required swaps are:
real estate for real estate and
personal property for personal property.
The following may only be exchanged for similar items:
Office furniture
Computers
Airplanes
Automobiles
Buses
Light trucks
Heavy trucks

Question 7

Basis

Answer 7

f the alternate value is chosen and the property is disposed of before the 6-month period has expired, that property shall be valued at the fair market value at the date of disposition, the sale price. Since Hall sold the stock before the 6-month period ended, his basis equals his sale price, and no gain or loss exists.

Question 8

Boot is gain

Answer 8

even in like kind transactions. Boot includes cash and forgiveness of debt

Question 9

Capital assets

Answer 9

IRC Section 1221 defines a capital asset by exclusion. If an item is listed there, then it is not a capital asset. All property used in a taxpayer’s trade or business is excluded from being a capital asset.

Question 10

1231 aseets

Answer 10

RC Section 1231 defines “property used in the trade or business” to mean property used in the trade or business, of a character which is subject to the allowance for depreciation and real property used in the trade or business. Both the land and the shed are used in the business and cannot be capital assets, but must qualify as IRC Section 1231 assets.

Question 11

Section 179 ( machinery and equipment)

Answer 11

Land is not depreciable and does not qualify for Section 179 automatic expensing. Uptp 510K if purchased upto 2030M. Anything above decreases dollar for dollar

Question 12

Gift gains or losses

Answer 12

If FMV is less than basis, and SP is between the basis and FMV than no gain or loss

Question 13

Taxable gifts

Answer 13

ach individual taxpayer can make gifts to any individual in any year up to $14,000 and the entire amount is excluded from gift tax. Tuition payments made to an educational organization on another’s behalf are not subject to the federal gift tax.
Therefore, the two gifts made by Mann are not subject to federal gift tax.

Question 14

Related parties

Answer 14

Losses from sales and exchanges between certain related parties are not recognized for tax purposes. Related parties are considered brother and sisters, half-brothers and half-sisters, spouses, ancestors (parents and grandparents), and lineal descendants. Relatives by marriage, or in-laws, are not considered related parties for tax purposes.

Question 15

Wash loss basis

Answer 15

The disallowed loss is added to the basis of the most recently purchased stock.

Question 16

depletion

Answer 16

ndividuals and entities that have an economic interest in a mineral property can take a deduction for depletion based on a percentage of the revenue for that period. The rate used for percentage depletion to recover capital investment in oil and gas properties is 15%, subject to a net taxable income limitation.

Question 17

likekind exchanges 100882

Answer 17

In a like-kind exchange, the basis of property received is the basis of the property given up plus any gain recognized, plus boot (cash or property not of a like kind) paid, less any loss recognized, less boot received. The basis of the tractor received is $40,000 ($40,000 + $6,000 gain - $6,000 boot received). The gain of $6,000 is the lesser of the realized gain of $10,000 or boot received of $6,000.

Question 18

related parties

Answer 18

A corporation and a shareholder are related parties if the shareholder owns more than 50% by value of the outstanding stock of the corporation.

Question 19

Federal estate tax

Answer 19

The federal estate tax may be reduced by both a credit for foreign death taxes and/or a credit for tax on prior transfers.
The credit for state death taxes was reduced each year beginning in 2002 until it was repealed in 2005 and replaced with a deduction for state death taxes paid.

Question 20

qualified div and ordinary div

Answer 20

Qualified dividends are also ordinary dividends.

Question 21

casualty losses

Answer 21

The deductible loss calculation is the lesser of the adjusted basis of the property and the difference between the FMV of the property before and immediately after the casualty event. In addition, the deductible loss is reduced by any insurance proceeds received by the taxpayer.

Question 22

Alternative value date - use this date for the basis of all assets in the estate

Answer 22

Use of the alternative valuation date requires that property not distributed, sold, exchanged, or otherwise disposed of within 6 months after the decedent’s death shall be valued as of the date 6 months after the decedent’s death; therefore, the stock was valued at the closing price on June 10, Year 2 of $50.00 per share (Document #1). When investment property is inherited, the capital gain or loss on any later disposition of that property is treated as a long-term capital gain or loss, regardless of how long the taxpayer actually held the property.

Question 23

death - basis - alternative value date or date of distribution

Answer 23

The basis of property that is received from a decedent that died before or after 2010 (Document #3) is generally the FMV of the property at the date of the individual’s death or the FMV on the alternate valuation date if the personal representative for the estate chooses to use alternate valuation. Therefore, the rental property is valued at $210,000, the value six months after death.

Question 24

alternative value date

Answer 24

Once the election for alternate valuation is made, the election may not be revoked. The alternative valuation date is for the entire estate, and is 6 months after the date of death

Question 25

Alternative value date

Answer 25

The executor can choose to value the gross estate at an alternative date, which is 6 months after the DOD of the decedent, as long as use of the alternative valuation method lowers both the value of the gross estate and the sum of the estate tax and generation-skipping tax after applying all allowable credits against these taxes.