R4 - Property Taxation Flashcards
What is defined as land and all items permanently affixed to the land?
Real property
Give an example of real property
Land and buildings
Give an example of personal property
- Machinery
- Equipment
- Automobiles
What is defined as all property not classified as real property?
Personal property
Capital asset or noncapital asset.
Purchased copyrights, literary, musical, or artistic compositions
Capital asset
Capital asset or noncapital asset.
Copyrights, literary, musical, or artistic compositions held by the original artist
Noncapital asset
Capital asset or noncapital asset.
Stocks and securities of all types (except those held by dealers)
Capital asset
Capital asset or noncapital asset.
Property normally included in inventory or held for sale to customers in the ordinary course of business.
Noncapital asset
Sales of musical compositions held by the original artist receive what type of treatment?
Capital gain treatment
What is the basic formula in determining the gain or loss?
Amount realized
(Adjusted basis of asset sold)
= Gain OR Loss
What items are included in amount realized?
1) Cash received
2) Assumption of debt by buyer
3) Property received at FMV
4) Services received at FMV
What is the amount realized reduced by?
Any selling expenses (e.g. broker’s commissions)
What is the adjusted basis of the asset sold?
Purchased property basis
= Cost
What is the adjusted basis of gifted property for gain/loss purposes (general rule)?
General rule = donor’s rollover cost basis (aka NBV)
Grandma gives a car worth $3,000 and having an adjusted basis of $5,000 to taxpayer Marge. For purposes of determining gain on the sale, what is Marge’s basis?
$5,000
Grandma gives a car worth $3,000 and having an adjusted basis of $5,000 to taxpayer Marge. For purposes of determining loss on the sale, what is Marge’s basis?
$3,000
Grandma gives a car worth $3,000 and having an adjusted basis of $5,000 to taxpayer Marge. If Marge subsequently sells the car for $3,500, what is the gain or loss?
- No gain or loss on sale
- Basis is $3,500
Grandma gives a car worth $3,000 and having an adjusted basis of $5,000 to taxpayer Marge. For purposes of calculating depreciation on the car prior to the sale, what is the depreciable basis?
$3,000
True or false.
The recipient of the gifted property normally assumes the donor’s holding period.
True
What is the adjusted basis of inherited property (general rule)?
Date of death FMV becomes basis
For inherited property, if the alternative valuation date is validly elected, the asset is valued using FMV at the earlier of the distribution date of the asset or what?
Alternative valuation date (earlier of 6 months after death or date of distribution/sale)
Property acquired from a decedent is automatically considered to be _______ property regardless of how long it actually has been held.
LT
If the executor of a decedent’s estate elects the alternative valuation date and none of the property included in the gross estate has been sold or distributed, the estate assets must be valued as of how many months after the decedent’s death?
6 months
Is the gain taxable?
Homeowners exclusion
No
Is the gain taxable?
Involuntary conversion
No
Is the gain taxable?
Divorce property settlement
No
Is the gain taxable?
Exchange of like kind (business)
NO
Is the gain taxable?
Installment sale
No
Is the gain taxable?
Treasury capital & stock
NO
Is the loss deductible?
Wash sale losses
NO
Is the loss deductible?
Related party losses
NO
Is the loss deductible?
Personal losses
NO
Gain to the extent of boot is ______.
Taxable
Boot includes _____, kept and not reinvested, and _______, the excess debt assumed by the buyer.
- Cash
- COD
The sale of the taxpayer’s personal principal residence is subject to an exclusion from gross income for gain. How much is available for MFJ and certain surviving spouses?
$500,000
The sale of the taxpayer’s personal principal residence is subject to an exclusion from gross income for gain. How much is available for single, MFS, and head of household?
$250,000
To qualify for the full homeowner’s exclusion (up to the applicable dollar amount), a taxpayer must have owned and used the property as a principal residence for how long?
For two years or more during the five-year period ending on the date of the sale or exchange by a taxpayer
The surviving spouse is entitled o the full $500,000 homeowner’s exclusion provided that she sell the home within how many years after the date of the decedent spouse’s death?
Two years
Gain to the extent of ____ is taxable.
Boot
Nonrecognition treatment is given to gains realized on involuntary conversions of property (e.g. destruction, theft, condemnation) on the rationale that the taxpayer’s _________ of the involuntarily received proceeds restores him to the position he held prior to the conversion.
Reinvestment
For involuntary personal property conversions, the reinvestment must occur within what time period?
Two years from year-end
For involuntary business property conversions, the reinvestment must occur within what time period?
Three years from year-end
Marge owns investment realty worth $40k and having an adjusted basis of $25k. If Marge exchanges this property for other realty worth $35k and $5k in cash, what is her realized gain?
$15,000 realized gain ($40k proceeds minus $25k basis)
Marge owns investment realty worth $40k and having an adjusted basis of $25k. If Marge exchanges this property for other realty worth $35k and $5k in cash, what is her recognized gain?
$5,000 recognized gain (to the extent of boot)
Marge owns investment realty worth $40k and having an adjusted basis of $25k. If Marge exchanges this property for other realty worth $35k and $5k in cash, what is her deferred gain?
$10,000 deferred gain ($15k realized gain less $5k gain recognized)
How do you calculate the basis in like-kind property received when boot is received?
= FMV of like-kind property received
Less: Deferred gain
Plus: Deferred loss
Marge owns investment realty worth $40k and having an adjusted basis of $25k. If Marge exchanges this property for other realty worth $35k and $5k in cash, what is her new basis?
New basis of $25,000
EXPLANATION: FMV $35k less deferred gain $10k equals new basis $25k
What is Form 8824 for?
Like-Kind exchanges
Under the installment method, revenue is reported over the period in which the cash payments are ________.
Received
Is the installment sale method available for sales of stocks or securities traded on an established market?
NO
Is the following corporation transaction exempt from gain (and any losses disallowed)?
Sales of stock by corporation
YES
Is the following corporation transaction exempt from gain (and any losses disallowed)?
Repurchase of stock by corporation
YES
Is the following corporation transaction exempt from gain (and any losses disallowed)?
Reissue of stock
YES
What exists when a security is sold for a loss and is repurchased within 30 days before or after the sale date?
Wash sale
Are wash sale losses allowed for tax purposes?
Disallowed
Are related party transaction losses allowed for tax purposes?
Disallowed
Are in-laws considered related parties?
NO
Are personal losses allowed for tax purposes?
Disallowed
What is the max net capital loss deduction for individual taxpayers?
$3,000
What is the max net capital loss deduction for MFS?
$1,500
How is excess net capital loss treated for individual taxpayers?
Carry forward for an unlimited time until exhausted
EXPLANATION: It maintains its character as LT or ST in future years
What does Section 1231 refer to?
Capital assets used in the business
Are section 1231 gains entitled to capital gain treatment?
YES
How are net capital gains of a corporation treated?
- Added to ordinary income AND
- Taxed at the regular tax rate
May corporations deduct any capital loss from ordinary income?
NO
How are corporate capital losses treated?
Carry back 3 years
Carry forward 5 years
In December, Year 10, Davis, a single taxpayer, purchased a new residence for $200k. Davis lived in the new residence continuously from Year 10 until selling the new residence in July, Year 17 for $455k. What amount of gain is recognized from the sale of residence on Davis’ Year 17 tax return?
$5,000
EXPLANATION: 455k - 200k = 255k - 250k homeowner exclusion = 5k gain recognized
True or false.
In a “like-kind” exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of rental real estate located in different states.
True
What is defined as an annual allowance given to a trade or business for exhaustion, wear and tear, and normal obsolescence?
Depreciation
What does MACRS stand for?
Modified Accelerated Cost Recovery System
Is salvage value included under the MACRS calculation?
Ignored
For MACRS - Real Estate, what is subtracted?
Subtract land cost
Residential rental property is depreciated over how many years?
27.5 years straight line
Nonresidential real property is depreciated over how many years?
39 year straight line
True or false.
Each tax year, a taxpayer may deduct, as an expense in lieu of depreciation, a fixed amount of depreciable property.
True
True or false.
An expense deduction in lieu of depreciation (section 179 expense) is not permitted when a net loss exists or if the deduction would create a net loss.
True
What is the GAAP method of depletion called?
Cost depletion
What is the non-GAAP method of depletion called?
Percentage depletion
May percentage depletion be taken even after costs have been completely recovered and there is no basis?
YES
Intangibles such as goodwill, licenses, franchises, and trademarks may be amortized using straight-line basis over a period of how many years, starting with the month of acquisition?
15 years
True or false.
The general rule is that all tangible property that is not inventory must be capitalized unless there is an exception.
True
Can the following be deducted instead of capitalized?
Materials and supplies that cost $200 or less or has an economic life of 12 months or less
Can be deducted instead of capitalized
True or false.
Indirect costs (such as otherwise deductible repair or removal costs) that directly benefit or are incurred by reason of an improvement, must be capitalized.
True
Amounts paid or incurred for acquiring, creating, or enhancing intangible property must be _____.
capitalized
Small businesses are those with less than what amount in assets or in average annual gross receipts?
Less than $10 million
On August 1, Year 1, Graham purchased and placed into service an office building costing $264k including $30k for the land. What was Graham’s MACRS deduction for the office building in Year 1?
$2,250
EXPLANATION: $264k - $30k = ($234k/39 years) * (4.5/12) = $2,250
True or false.
Capital assets include a manufacturing company’s investment in US Treasury bonds.
True
EXPLANATION: Investment assets of a taxpayer that are not inventory are capital assets.
Farr made a gift of stock to her child, Marge. At the date of the gift, Farr’s stock basis was $10k and the stock’s FMV was $15k. No gift taxes were paid. What is Marge’s basis in the stock for computing gain?
$10k
EXPLANATION: Property acquired as a gift generally retains the rollover cost basis that it had in the hands of the donor at the time of the gift. Basis is increased by any gift tax paid that is attributable to the net appreciation in the value of the gift. Since there were no gift taxes paid, Marge’s basis for computing a gain is the rollover cost (basis).
A heavy equipment dealer would like to trade some business assets in a nontaxable exchange. Does the following qualify?
A corporate office building for a vacant lot
Yes
EXPLANATION: It qualifies for like-kind nonrecognition treatment. It is the exchange of realty for realty of property used in the trade or business or held for investment.
