R3 Property Taxation

Question 1

What are the additional costs that make basis go up?

Answer 1

1. Shipping Costs
2. Installation Costs
3. Sales Taxes
4. Testing Costs
5. Cost of Title Insurance Policy

Question 2

What is the basis of a gift?

Answer 2

Always think that the IRS wants to get the most out of your gift!
Basis of a gift depends on the selling price:
1. If selling price > mom’s basis; basis = mom’s basis
2. If selling price < FMV @ gift; basis = FMV @ gift
3. If mom’s basis < selling price < FMV @ gift; basis = selling price (no gain or loss)

Question 3

What is the basis of inherited property if no AVD is elected?

Answer 3

FMV when person gifting me dies

Question 4

What is the basis of inherited property if AVD is elected?

Answer 4

Whatever happens first:

a. FMV @ AVD
b. FMV @ Sale Date

Question 5

What is the basis of stock that is sold before the AVD?

Answer 5

Basis is the FMV of the date stock was received.

Question 6

How do you calculate realized gain for Like-Kind Exchanges?

Answer 6

FMV of Prop Received
(-) NBV property given
(+) Cash received 
(-) Cash given
(+) Liability relief
(-) Liability assumed
(=) Realized Gain

Question 7

What is the recognized gain in a Like-Kind exchange when boot is received?

Answer 7

Recognized gain is the lesser of Realized Gain or Boot Received.

Question 8

How do you calculate your basis for Like-Kind Exchanges?

Answer 8

FMV of Prop Received
(-) Deferred Gain
(+) Deferred Loss
(=) Basis

Question 9

What is a wash sale loss?

Answer 9

If I buy stock, and sell it at a loss within 30 days of the date of purchase, the loss is disallowed.

Question 10

What kinds of property are classified as capital assets?

Answer 10

Assets held for investment, not to be used in a trade or business.

Question 11

What are Sec 1231 assets?

Answer 11

Assets used in trade or business and held over 12 mo:

• Real property
• Personal property
• Land

Question 12

What are Sec 1245 assets?

Answer 12

Depreciable personal property held over 12 mo.

Question 13

What are Sec 1250 assets?

Answer 13

Depreciable real personal property held over 12 mo.

Question 14

What is the difference between Sec 1231, Sec 1245, ans Sec 1250 assets?

Answer 14

Their tax treatment.

Question 15

What is the tax treatment for Sec 1231 assets?

Answer 15

Depends on netted amount:

• If I end up with net gains, then Cap Gain treatment.
• If i end up with net losses, then Ordinary loss.

Question 16

What is the tax treatment for Sec 1245 asset gains?

Answer 16

Accumulated Depreciation is treated as ordinary gain, and the remaining gain is treated as Cap Gain.

Question 17

What is the tax treatment for Sec 1250 asset gains for Corporations?

Answer 17

Sec 291 applies = 20% of the lesser of Accum Depr or recognized gain. Remaining gain is taxed at Sec 1231 rates.

Question 18

What is the tax treatment for Sec 1250 asset gains for individuals?

Answer 18

1. Determine Sec 1250 gain by choosing the lesser of SL Accum Depr and Recognized gain.
2. Include Sec 1250 gain in Sec 1231 netting calculation.
3. If Accum Depr > Recognized gain, all gain is taxed at 25%
4. If Accum Depr < Recognized gain, Accum Depr is taxed at 25%, and remaning gain is taxed at Sec 1231 rates.

Question 19

What is the Cap Gain Netting Process?

Answer 19

1. Net LTCG(L) with STCG(L) and figure out its character.

Question 20

What is the order if I end up with a STCL?

Answer 20

1. LTCG taxed at 28%
2. LTCG taxed at 25%
3. LTCG taxed at 15%

Question 21

What is the order if I end up with a LTCL 15%?

Answer 21

1. LTCG taxed at 28%
2. LTCG taxed at 25%
3. STCG

Question 22

What is the order if I end up with a LTCL 28%?

Answer 22

1. LTCG taxed at 25%
2. LTCG taxed at 15%
3. STCG

Question 23

What is the order if I end up with a Sec 1231 gain/loss?

Answer 23

This is ordinary gain, so it is out of this netting process.

Question 24

What is the Homeowner’s exclusion?

Answer 24

If the home is owned and used as a principal residence for two or more years during the last 5 years before the property is sold, then you can exclude 500K MFJ (250K S)

Question 25

How is the gain exclusion reduced if you don’t meet the use of home requirement?

Answer 25

Reduction = 500K MFJ (250K S) * (non qualified use/total time home was owned)

Non qualified use is time the taxpayer did not live in the home!!!

For MFJ, not both TP must meet the use requirement. It could be only one to qualify.

Question 26

What is the treatment of a forgiven debt that I am personally liable for?

Answer 26

It is treated as a regular sale, and not COD. Gain must be recognized. Therefore, it is calculated as:
FMV
(-) Basis
(=) Gain Recognized

• FMV @ repo - Amt owed = Ordinary income

Question 27

What is the tax treatment for Section 1244 gain or loss?

Answer 27

It is treated as Ordinary Income, not cap gain or loss.