R3 - Property Taxation Flashcards
Basis per share:
Taxpayer has to spread their basis over total amount of shares when a stock-split happens. Original basis doesn’t change only “per share basis does”
Example:
Original: 100 shares for $10,000 = $100 basis per share
Stock split: 200 shares for 10,000 = $50 basis per share.
Sold 100 shares = $5,000 basis of sold shares
Basis per share: LT capital gain - CALCULATION
Amount realized
(selling price x #shares
sold)
-Adjusted basis
(if there was a stock split
/ new total shares)
=LT Capital gain
Property Acquired as a Gift:
Typically retains the rollover cost basis of the donor. Increased by any gift-tax paid for the appreciation of the gift.
Unless:
At the time of the gift, the FMV is < Basis from the donor.
Then:
Basis of donee in gift depends on the future selling price of the asset.
- > Donor's basis (Basis to
donee is same as the
donor's)
- Between donor's basis
and the lower FMV at the
date of the gift (no
gain/loss)
- < FMV at date of gift
(lesser of the donor's
basis or FV of property
at date of gift)
Inherited Property:
No income tax on this.
Inherited Property: ST vs LT gains
Unless the executor elects the “alternative valuation date” the basis in the property inherited is the FMV at the date of death.
Property acquired like this, is always considered LT property/gains if sold
De-Minimis Rule:
Company must have a written accounting policy to expense items up to a certain amount and economic life. Must also have an applicable FS at the end of the year.
If both of these apply:
-Company can deduct items
costing up to $5,000 each
If no FS: -Company can deduct up to items up to $2,500 (if items are worth more than this, than they cannot deduct)
Qualifying Small Taxpayer: Safe Harbor Rule
Average annual gross receipts from past 3 years are < $10,000,000.
Building and property qualifies if the un-adjusted basis is < $1,000,000.
If both of these apply:
- Taxpayer can deduct improvements to building that don’t exceed $10,000 or 2% of un-adjusted basis of building.
- If taxpayer doesn’t qualify as “small taxpayer” then they can’t deduct repairs and maintenance to building
Basis in property bought:
Any amount paid in cash and debt assumed to purchase the land.
Like-kind Exchange: CALCULATION
Adjusted basis of old property given up
- Boot received (if lesser
than Gain realized)
+ Gain recognized
+Boot paid (not received) or
Liabilities assumed
= Basis in new property
OR
FMV of new property
+ Deferred loss (adjust basis
of old property - (FMV of
new property + Boot
received))
= Basis in new property
Wash sale:
Taxpayer sells stock at a loss and invests in substantially identical stock within 30 days before/after the sale.
-This loss is not deductible.
Like-Kind Exchange: Treatment
Exceptions:
- Inventory
- Stock
- Securities
- Partnership interests
- Real property (from
different countries)
These are taxable
Means: “Same type of investment”
Example of Like-kind exchange that is non-taxable:
- Office building for vacant
lot (realty for realty used in
business)
Like-Kind Exchange: NOTE
Assets exchanged but be of the same “asset class” to qualify for “non-recognition” (not taxable)
Like-Kind Exchange: Gains/losses Recognized
Recognize the lesser of the “Gain realized and boot received”
“Boot”: NOTE
Doesn’t have to be cash. Just anything given “in addition” to the asset acquired in an exchange.
Like-Kind Exchange: NOTE
Losses are NEVER recognized
Selling property: Calculation
As long as the taxpayer has lived in his home 2 or more out of the 5 years before he sells his home, he can deduct up to $250,000 of the gain (and recognize the rest)
SP -Basis =Realized Gain -$250,000 excluded =Recognized Gain
Like-kind Exchange: Always remeber
Gain recognize =
Lesser of:
- Net boot received (liabilities
assumed/given to other
party or cash/assets
received) - Gain realized
“Boot”: NOTE
When figuring out what gain to recognize, don’t net “boot paid and boot received” add them together.
THEN:
Gain recognized = lesser of total boot or gain realized
Sale of personal residence:
Subject to an exclusion from gross income for gain:
$500,000 married filing jointly or $250,000 single.
So any gain under this amount doesn’t have to be recognized (excluded)
Involuntary Conversion: CALCULATION
Insurance Proceeds -Adjusted basis of old property = Realized Gain -Gain recognized (excess of insurance proceeds over amount reinvested) =Gain not recognized
Cost of new property
- Gain not recognized
=Basis of new property
Involuntary Conversion: Lost profits
If nothing is deferred then both the excess of insurance proceeds over basis and lost profits are taxable.
Selling property/stock to a related Party (son/daughter, wife, family):
You cannot deduct any gains/losses.
Related Parties Buying/Selling Property/Stock:
Example:
- Sold stock to daughter for $10,000 loss and she sold it for $5,000 gain.
- Her gain is reduced by any loss her father had when selling it to her. Gain is reduced to zero but not below.
- However:
If daughters Sale Price of stock is greater than the basis the father had in it, the Daughter has to use her father’s basis to determine her gain on the sale.
MACRS: Depreciation
Half year: - Personal property, under which such placed in service or disposed of during a taxable year is treated as having been placed into service at the midpoint of the year.
Mid-quarter: - If >40% of depreciable personal property is put into service in the last quarter of the year.
Mid-Month: - SL is computed based on the number of months the property was in service. 1/2 month for month when property is put into service
NO SALVAGE VALUE
MACRS: Depreciation Deduction for Residentail vs Non-residential real property
Residential: SL 27.5 years
Non: SL 39 years
Use mid-month MACRS convention for deductible depreciation.
Make sure to multiply by (months o/s to YE/12)
MACRS: Property other than Real Property
- 3 Year 200%: (ADR midpoints of 4 years or less) racehorses more than 2 years old, other horses more than 12 years old and special tools
- 5 year 200%: (ADR midpoints more than 4 years and less than 10) automobiles, light trucks, computers, copiers
- 7 year 200%: (ADR midpoints more than 10 and less than 16) office furniture and fixtures, equipment
- 10 year 200%: (ADR midpoints more than 16 and less than 20) boats and water transportation
- 15 year 150%: (ADR midpoints more than 20 and less than 25) utility plants, qualified improvements, restaurants, retail property
- 20 year 150%: ADR midpoints greater than 25 (other than real property with ADR midpoint of 27.5 years and more, including sewer pipes)
MACRS: Half-year Depreciation
Half of year put in service is depreciated and half of year disposed of is depreciated.
Amortizing Intangibles for tax purposes:
Amortized over 15 years
GAAP: intangibles are only subject to impairment testing
Capital Assets: DEFINITION
Investment Assets of a taxpayer that aren’t inventory
Gain/Losses: Offsetting
Short Term Losses: - 1st offset by short term gains - 2nd offset by any 28% LT capital gains (collectibles) - 3rd offset by any 25% LT capital gains (section 1250 un-recaptured) - 4th offset by 15% LT gains
Long Term Losses:
-LT capital loss carryovers from 28% group)
- 1st offset by 25% group
(section 1250)
- 2nd offset by 15% group
- LT capital loss carryovers from 15% group
- 1st offset by 28% group
- 2nd offset by 25% group
Capital Assets Include:
- Assets held for personal use
- Furniture and fixtures
- Stocks/securities
- Personal property
- Real property not used in
trade or business - Interest in partnership
- Goodwill
- Copyrights, literary, musical
or artistic compositions - Other assets held for
investments
Gains: Installment Method
(not available for stock/securities)
Sales price
-Adjusted Basis
=Realized Gain
Realized Gain/SP = GP%
GP% * Cash received
= Capital/ordinary gain for year
Net Capital Loss Deduction: Carry-over Calculation
Maximum of $3,000 can be deducted (MFJ) (difference is carried forward indefinitely)
MFS is $1,500
This can be used to offset income from other sources (ordinary income).
This can reduce a loss carry-forward as well.
Example:
Loss of $20,000
Gain of $3,000
Carry-over: $17,000
- an additional $3,000
Carry-over is now only
$14,000
Worthless Stocks:
Loss is considered capital loss and viewed as if they were sold on the last day of the year in which they become worthless.
Example:
- Options lapsing
Gains/Losses: NOTE
Don’t have to have basis in a capital asset in order to recognize a capital gain/loss
Gross Profit: TAX CALCULATION
Selling Price \+Liabilities assumed by buyer -Selling Expenses =Amount realized -Basis in property =Gain realized/gross profit
LT/ST Gains/Losses: NOTE
NET ST to ST
NET LT to LT
THEN
NET LT to ST
Section 1231:
Depreciable real/personal property used in taxpayer’s business for >12 months.
Gains Treatment:
- Tax of 0, 15, or 20% of net
Section 1231 gains from
sales, exchanges or
involuntary conversions of
certain "noncapital assets"
can be subject to section
1245/1250
Losses Treatment:
- Losses in excess of gains
are consider “ordinary
losses”
Section 1245: Gains Only
Generally personal properties used in trade/business for >12 months (furniture/fixtures)
Recapture:
- Upon sale the "lesser" of
gain recognized or all AD
is recaptured as ordinary
income under 1245 and any
remaining gain is a 1231
Gain (taxed as LT capital
gain)
- Take (realized gain - AD)
and anything left over is
taxed as LT capital gain
- Upon sale, if Gain
Section 1250: Gains Only
Real property used in business.
Recapture: - Recaptures only portion of depreciation taken on real property that is in excess of ST depreciation. - Only applies to assets placed in service under pre-1987 accelerated methods for real property
Installment Sales: Related Parties
Its allowed!
Remember to add down-payment when calculating!
Capital Assets: DON’T INCLUDE
Considered all property held by taxpayer except:
- Property normally included in inventory to be sold
- Depreciable property and real estate used in business
- A/R and Notes Receivable
- Copyrights, literary, musical, or artistic compositions
- Treasury Stock
Corporation Capital Gains/Losses:
Net Capital Gains: - Added to ordinary income and taxed at regular rate - 1231 Gains are entitled to capital gains treatment
Net Capital Losses:
- Cannot deduct any
capital losses from
ordinary income
- Carried back 3 years and
forward 5 years as a ST
capital loss
- Deducted from capital or
1231 gains.
-1231 gains are
considered capital
assets used in
business and 1231
losses are treated as
ordinary
