R4 - Property Taxation Flashcards
What are capital assets?
They include property (real and personal) held by the tax payer such as:
- Personal automobiles
- Furniture and fixtures in home
- All types of stocks and securities, except held by dealers
- Personal property NOT used in trade/business
- Real property NOT used in trade or business
- Interest in partnership
- Goodwill of corp
- Copyrights, literary, musical, or artistic compositions PURCHASED
- Other assets held for investment
Like-kind exchange: How to calculate gain/loss REALIZED.
= FMV property received - Boot given away + Boot received - Adjusted basis propery given away
Like-kind exchange: Gain or loss recognized formula.
= Lesser of realized gain or net boot RECEIVED
Note: you never realize a loss!
Note: offset the boot received by the boot paid.
Like-kind exchange: gain / loss deferred formula.
Gain deferred = Gain realized - gain recognized
Loss deferred = Loss realized - loss recognized
Like-kind exchange: Basis in new property
What are the two formulas to calc this?
1) = FMV prop received - Deferred Gain + Deferred Loss
2= Adj Basis prop given up - Loss Recog + Gain Recog - Boot received + Boot paid
What is a wash sale?
A wash sale exists when a security is sold for a loss and is repurchased within 30 days before or after the sale. A loss on a wash sale is disallowed for tax purposes.
Like-kind exchange
Adjusted basis formula
= Original cost - depreciation
Like-kind exchange
Gain / (loss) realized formula
= FMV new asset + Boot received - Boot paid - Adj basis old asset
Like-kind exchange:
Gain / (loss) recognized formula
= Lesser of
- Realized gain or
- Boot received
Note: realized loss is never recognized in like-kind exchange
Like-kind exchange
Boot received formula
= Cash received + FMV non-like-kind prop received + Net relief from liab (you gave up)
Like-kind exchange
Boot paid formula
= Cash paid + FMV non-like-kind prop given up + Net liability you assumed
Like-kind exchange
Gain / (loss) deferred formula
= Gain realized - gain recognized
When can you use installment sale method?
Sales mad eby nonmerchants and nondealers. It’s not available for stocks or securities.
Installment sale
How do you recognized revenue?
Revenue is reported over the period in which cash payments are received. Does not alter the classification (cap gain or ordinary income).
Taxable income = Annual cash collection x GP%
Installment Sale
Gross profit formula
= Sale - Cost of goods sold
Installment Sale
GP % formula
= Gross profit / Sales price
Installment Sale
Earned Revenue (taxable income) formula
= Cash collection x GP %
What is half-year convention?
Applies to personal property (machinery and equip) placed in service or disposed during the year. Treats them as if they were placed in service/disposed at the midpoint of the year.
What is the mid-quarter convention?
Applies to machinery and equip. If more than 40% of depreciable personal property is placed in service in the last quarter of the year, the mid-quarter must be used.
For MACRS real estate, do you include salvage value and land costs when calculating annual depreciation?
You ignore salvage value and you subtract land cost.
What is Residential Real Property?
Apartments and duplex rental homes. They have a 27.5 yr S/L deprec.
What is Nonresidential Real Property?
Real property that is not residential rental property and that does NOT have asset depreciation range of more thatn 27.5 years.
It includes office buildings and warehouses.
What is the mid-month convention?
S/L deprec computed based on # of months property was in service.
1/2 month taken in month property placed in service.
1/2 month taken in month property is disposed.
What is Section 179 expense?
Each year, taxpayer can deduct as an expense in lieu of depreciation a fixed amount of depreciable property (machinery, equip, computer software).
- $25,000 reduced $1 for $1 by amount placed in service during year greater than $200,000.
Is cost depletion or percentage depletion used for tax?
Percentage depletion.
What is percentag depletion?
Decution limted to 50% of taxable income from well or mine. Allowable % range from 5 to 22% depending on the mineral extracted.
% depletion may be taken even after costs have been fully receoverd and there is no basis.
What is Section 1231 property?
Depreciable personal and real property used in taxpayer’s trade or business and held more than 12 months.
How do you treat 1231 gains?
Net 1231 gains are treated as long-term capital gains.
Net 1231 gain will be treated as ordinary income instead of LTCG to extent of nonrecaptured net 1231 losses for 5 most recent years. Net 1231 gains recharacterized as ord income are:
- 1st 28% group
- 2nd 25% group
- 3rd 20% or 15% group.
How do you treat 1231 losses?
If losses > gains, treat all gains and losses as ordinary.
What is section 1245 recapture?
Gains only under 1245.
You are recapturing as ordinary income all gains attributable to
- Post 1961 deprec on disposal of 1245 prop
- Post 1980 recovery deductions on disposal of 1245 prop
The amount of the “recapture” is the amount of accumulated deprecation upon sale of that property. Any remaining amount is then treated as 1231 gain.
What is section 1245 property?
Desks, machines, equipment, cards, and trucks.
Special-purpose structures, storage facilities, and other property that’s not buildings.
What is 1250 property?
Real property used in trade or business more than 12 months (e.g. warehouse).
What is 1250 recapture for corporations?
If 1250 property is held 12 months or less, gain on disposition is recaptured as ordinary income to exten of accumulated deprection.
If 1250 property is held more than 12 months, gain is recaptured as ordinary income to extent of accumulated depreciation in excess of S/L. This excess amount is allowed 1231 treatment (capital gain).
What is 291 recapture?
Ordinary income portion of 1250 property by corporations is increased by 20%.
