R3-M2 Taxable and Nontaxable Dispositions

Question 1

what is considered basis of involuntary conversion building?

Answer 1

• adjusted basis of building
• removal and cleanup cost

Question 2

what is considered basis of a divorce property settlement?

Answer 2

the recipient spouse’s basis of the investment property is the carryover basis (basis in the hands of the former spouse)

Question 3

what is definition of involuntary conversion?

Answer 3

In order to be treated as an involuntary conversion, the transaction must result from a condemnation of property or a destruction or loss from theft or casualty

Question 4

what is recaptured gain under section 1245?

Answer 4

• the LESSER of the depreciation taken or the gain recognized.
• They usually are personal property (machinery and equipment) used in business for over a year
• taxed as an ordinary income

Question 5

what is recaptured gain under section 1250?

Answer 5

• the LESSER of the depreciation taken or the gain recognized.
• They usually are real property (office building) used in business for over a year
• taxed as an ordinary income
• any gain in excess of section 1250 is section 1231 gain

Question 6

what are 1231 assets?

Answer 6

• assets are depreciable personal property and real property used in a business and held for over 12 months. ex: land held for 18 months
• taxed as a long term capital

Question 7

How to report installment sale gain?

Answer 7

• gross profit = SP - adjusted basis
• gross profit % = gross profit / sale price
• gain recognized (taxable income) = cash collections (excluding interest) x gross profit %
• all depreciation recapture must be included in income in the year of sale
• gain from sale of depreciable property to a related person is generally ineligible for installment sale reporting
• installment method is not available for sales of stocks or securities traded on an established market