R4 - Property Taxation

Question 1

What are capital assets?

Answer 1

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

Question 2

Like-kind exchange: How to calculate gain/loss REALIZED.

Answer 2

= FMV property received - Boot given away + Boot received - Adjusted basis propery given away

Question 3

Like-kind exchange: Gain or loss recognized formula.

Answer 3

= Lesser of realized gain or net boot RECEIVED

Note: you never realize a loss!

Note: offset the boot received by the boot paid.

Question 4

Like-kind exchange: gain / loss deferred formula.

Answer 4

Gain deferred = Gain realized - gain recognized

Loss deferred = Loss realized - loss recognized

Question 5

Like-kind exchange: Basis in new property

What are the two formulas to calc this?

Answer 5

1) = FMV prop received - Deferred Gain + Deferred Loss

2= Adj Basis prop given up - Loss Recog + Gain Recog - Boot received + Boot paid

Question 6

What is a wash sale?

Answer 6

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.

Question 7

Like-kind exchange

Adjusted basis formula

Answer 7

= Original cost - depreciation

Question 8

Like-kind exchange

Gain / (loss) realized formula

Answer 8

= FMV new asset + Boot received - Boot paid - Adj basis old asset

Question 9

Like-kind exchange:

Gain / (loss) recognized formula

Answer 9

= Lesser of

• Realized gain or
• Boot received

Note: realized loss is never recognized in like-kind exchange

Question 10

Like-kind exchange

Boot received formula

Answer 10

= Cash received + FMV non-like-kind prop received + Net relief from liab (you gave up)

Question 11

Like-kind exchange

Boot paid formula

Answer 11

= Cash paid + FMV non-like-kind prop given up + Net liability you assumed

Question 12

Like-kind exchange

Gain / (loss) deferred formula

Answer 12

= Gain realized - gain recognized

Question 13

When can you use installment sale method?

Answer 13

Sales mad eby nonmerchants and nondealers. It’s not available for stocks or securities.

Question 14

Installment sale

How do you recognized revenue?

Answer 14

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%

Question 15

Installment Sale

Gross profit formula

Answer 15

= Sale - Cost of goods sold

Question 16

Installment Sale

GP % formula

Answer 16

= Gross profit / Sales price

Question 17

Installment Sale

Earned Revenue (taxable income) formula

Answer 17

= Cash collection x GP %

Question 18

What is half-year convention?

Answer 18

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.

Question 19

What is the mid-quarter convention?

Answer 19

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.

Question 20

For MACRS real estate, do you include salvage value and land costs when calculating annual depreciation?

Answer 20

You ignore salvage value and you subtract land cost.

Question 21

What is Residential Real Property?

Answer 21

Apartments and duplex rental homes. They have a 27.5 yr S/L deprec.

Question 22

What is Nonresidential Real Property?

Answer 22

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.

Question 23

What is the mid-month convention?

Answer 23

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.

Question 24

What is Section 179 expense?

Answer 24

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.

Question 25

Is cost depletion or percentage depletion used for tax?

Answer 25

Percentage depletion.

Question 26

What is percentag depletion?

Answer 26

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.

Question 27

What is Section 1231 property?

Answer 27

Depreciable personal and real property used in taxpayer’s trade or business and held more than 12 months.

Question 28

How do you treat 1231 gains?

Answer 28

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.

Question 29

How do you treat 1231 losses?

Answer 29

If losses > gains, treat all gains and losses as ordinary.

Question 30

What is section 1245 recapture?

Answer 30

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.

Question 31

What is section 1245 property?

Answer 31

Desks, machines, equipment, cards, and trucks.

Special-purpose structures, storage facilities, and other property that’s not buildings.

Question 32

What is 1250 property?

Answer 32

Real property used in trade or business more than 12 months (e.g. warehouse).

Question 33

What is 1250 recapture for corporations?

Answer 33

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).

Question 34

What is 291 recapture?

Answer 34

Ordinary income portion of 1250 property by corporations is increased by 20%.