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REG > R4- Property Transactions > Flashcards

R4- Property Transactions Flashcards

1
Q

What is the basic calculation for Basis/Amount Realized in property?

A 
Cost of property 
\+ Purchase expenses 
\+ Debt assumed 
\+ Back taxes and interest paid 
= Basis. [Amount Realized]

Note: taxes and interest related to time when a taxpayer did not own the property are not deductible - they are added to basis.

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2
Q

What is the recipient or donee’s basis on gifted property Sold at a Gain?

A
  • Use donor’s basis
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3
Q

What is the Basis of Inherited Property?

A

Step Up/Down to FMV

FMV at date of death or alternate valuation date (6 months later)

If alternate date is elected by property is sold before 6 month window; use FMV at date of death.

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4
Q

What is the holding period on a stock dividend?

A

Holding period of new stock received from a dividend takes on the holding period of the original stock

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5
Q

What property is eligible for like-kind exchange treatment?

A

Real or Personal for personal business property only

US property only

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6
Q

What is BOOT in a like-kind exchange?

A

Cash received
+ unlike property received
+ liability passed to other party

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7
Q

In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?

A

DO NOT subtract the boot paid amount from the cash received

Ignore the boot paid amount from the mortgage completely

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8
Q

What is an Involuntary Conversion?

A
  • Occurs when you receive money for a property (destruction, theft) involuntarily converted
  • Nonrecognition treatment is given to gains realized
  • Rationale that taxpayer reinvest of the proceeds
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9
Q

What are the requirements for exclusion of gain on a primary residence?

A

Must live there 2 out of 5 years

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10
Q

What is a Wash Sale?

A

30 Day rule applies

Disallowed loss adds to basis of new stock

New stock takes on date of acquisition of old stock

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11
Q

Who is considered a related party in a property transaction?

A
  • Ancestors; siblings; spouse; descendants;
  • Corporation or Partnership where you’re a 50% shareholder
  • In-laws are NOT related parties.
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12
Q

How are capital losses taken in a corporation?

A

Capital losses only offset capital gains

Carryback 3 years - if you elect NOT to carryback; you lost the option in the future

Carry forward 5 years - only as STCL

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13
Q

What assets are NOT capital assets?

A

Inventory; Business interest; Accounts Receivable; Covenant not to compete

Goodwill IS a capital asset

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14
Q

What are the steps in applying a capital gain or loss?

A

Net all STCG and STCL

Net all LTCG and LTCL

Add together

Deduct $3;000

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15
Q

How much ordinary income can be offset by an INDIVIDUAL’s capital losses?

A

$3;000 per year.

Unused is carried forward and taken $3;000 each year.

No carryback is allowed.

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16
Q

Which property is governed by section 1231?

A

Real or Personal Business Property held more than a year

Inventory is never 1231 Property

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17
Q

How are section 1231 Gains handled?

A
  • Net Gain = Combine with other 1231 Gains

- If 1231 Gains exceed losses; treat at LTCG

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18
Q

How is section 1245 Depreciation Recapture handled?

A
  • To the extent of depreciation
  • Treat as ordinary gain
  • Remainder is 1231 gain; which is LTCG
  • There are no 1245 Losses
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19
Q

What property qualifies for section 1250 treatment?

A

1250 property is Real Estate that is not 1231 Property

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20
Q

When are 1231; 1245 and 1250 G/L always ordinary?

A

When the asset is held less than one year.

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21
Q

What is (are) the depreciation convention(s) for personal property?

A

Mid-year & Mid-quarter

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22
Q

When is the mid-quarter convention used?

A

For depreciation when 40% or more of all purchases occur in 4th quarter.

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23
Q

What depreciation convention is used for real property?

A

Mid-month

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24
Q

What depreciation life and convention are used for leasehold improvements?

A

15 year straight line (S/L)

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25
Q

What ratio is applied to principle payments in an installment sale to determine the gain in a given year?

A

Gross Profit / Contract Price

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26
Q

What is the contract price in an installment sale for income tax purposes?

A

Contract Price =
Sales Price
- Liability assumed by buyer

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27
Q

What is the difference between Real Property & Personal Property?

A
  • Real: Land & Building

- Personal: Machinery, Equipment & Auto

28
Q

What are Non-Capital Assets?

A
  • Property included in inventory or Held For Sale in ordinary course of business
  • Depreciable Personal Property & Real Estate in Trade/Business [sec1231,etc]
  • A/R & N/R
  • Artists works- held by original artist
29
Q

What is the recipient or donee’s basis on gifted property Sold at a loss?

A
  • Use lesser of donor’s basis or FMV at time of distribution
30
Q

What is the recipient or donee’s basis on gifted property Sold in between donor’s basis and FMV?

A
  • No gain or loss
31
Q

What is the General Rule for Property received as Gifts Cost Basis?

A
  • Retains the Rollover cost Basis as the donor’s at time of gift
  • Increased by any gift tax paid attributable to Net Appreciation
32
Q

What is the Exception of Gifted Property Basis?

A
  • If FMV at the date of gift is lower then Rollover cost basis
  • Then the Donee’s Basis depends on future selling price of the asset
33
Q

What is the Holding Period for Gifts?

A
  • The recipient normally assumes the Donor’s Holding Period
34
Q

What is the Holding Period of inherited property?

A
  • Long Term CG property regardless of how long it is held by the recipient.
35
Q

For Inherited Property if the Alt. Valuation date is elected then valued using FMV at the Earlier Of:

A
  • Distribution date of Asset
    OR
  • Alternate Valuation: Earlier of 6 months of distribution
36
Q

What items are included in GAIN not included on the Tax Return?’?

A
  • Homeowners Exclusion
  • Involuntary Conversion
  • Divorce Property Settlement
  • Exchange of Like Kind (Bus)
  • Installment Sale
  • Treasury Capital & Stock
    ‘HIDE IT’
37
Q

What items are included in LOSS not included on the Tax Return?’?

A
  • Wash Sale Losses
  • Related Party Losses
  • And
  • Personal Losses
    ‘WRaP’
38
Q

How are losses treated for a Primary Residence?

A

Loss on sale of home is NOT deductible

39
Q

Sale of Personal Principal Residence for the Homeowner’s Exclusion from Gross income for Gain:

A
  • $500,000 for Married couples/Surviving Spouse filing Joint Returns
  • $250,000 for Single Taxpayers, Married Filing separately & Head of Household
40
Q

When does Involuntary Conversion NOT result in a Gain?

A

There is no gain if you reinvest the proceeds completely

41
Q

When must the Reinvestment from Involuntary Conversion for Personal & Business Property occur within?

A
  • Personal: Must occur within 2 years from year-end

- Business: Must occur within 3 years from year-end

42
Q

What is the Basis in Like-Kind Exchanges with Boot is received?

A

FMV of property received
- Deferred Gain
+ Deferred Loss
= Basis in Like-Kind Exchange

43
Q

What is the Earned Revenue (Taxable income) for Reportable Installment Sale Gain/Income?

A

Cash Collections X Gross Profit %

= Earned Rev/ Taxable Inc

44
Q

How does a Related Party Transaction affect a Property Transaction?

A

Seller cannot take a loss on sale to a related party; but gain is always recognized.

Related party gets to use the disallowed loss when they sell.

45
Q

What is the Related party’s holding period?

A
  • Begins when they acquire the property.
46
Q

Can a Personal Loss be deductible on a Non-Business disposal?

A
  • No deduction is allowed

- Itemized only when Casualty & Theft

47
Q

What is the Holding Period for INDIVIDUAL’S LT & ST Net Capital Gains?

A

Short Term: One year or Less

Long Term: More then one year

48
Q

What is the Tax Rates for INDIVIDUAL’S LT Net Capital Gains?

A
  • 20% is the Maximum
  • 15%
  • 0% for 10-15% taxpayers
49
Q

What is the Tax Treatment for INDIVIDUAL’S ST Net Capital Gains?

A
  • Treated as Ordinary Income
50
Q

What is the treatment for a Corporation’s Net Capital Gains?

A
  • Added to Ordinary Income
    &
  • Taxed at Regular tax rate
51
Q

Half-Year Convention Depreciation applies to?

A
  • Personal Property

- Having been placed in service or disposed of at the midpoint of the year

52
Q

How many years is Residential & Non-Residential Rental Property depreciated for?

A
  • Residential: 27.5 years Straight Line

- Non-Residential: 39 years SL

53
Q

What is the Limit for the fixed amount of Expense new/used Personal Property acquired from unrelated party?

A
  • $500,000
54
Q

What is the Limit for the fixed amount of a new/used REAL Property a business can expense?

A
  • $250,000

- leasehold, retail, restaurant improvements

55
Q

The Maximum amount of the Expense Deduction is reduced?

A
  • For dollar for dollar by the amount of property that exceeds $2,000,000
56
Q

The Expense Deduction is Not permitted when?

A
  • A Net Loss exists
    OR
  • If the Deduction would create a Net Loss
57
Q

Under Percentage Depletion, the deduction is limited to?

A
  • 50% of taxable income

- Included in ‘Preference’ in Alt. Min. Tax

58
Q

What are the Allowable Percentages for Depletion?

A
  • 5% to 22% depending upon minerals being extracted.
59
Q

How are section 1231 Losses handled?

A
  • Casualty Losses on 1231 Property; Net the losses

- If 1231 Losses exceed gains; treat as Ordinary Loss

60
Q

For Section 1250; how are gains/losses handled?

A

Use 1250 for Gain only.

For losses; use 1231

Individuals: Post-1986 property with a gain is 1231 LTCG

If Straight Line depreciation is used; don’t use 1250 - Entire gain is 1231

61
Q

For Section 1250; how are gains/losses for Corporations handled?

A
  • Section 291 requires 20% of depreciation classified as ordinary gain
  • Remainder is 1231 LTCG
62
Q

When does section 1245 Depreciation Recapture Gain apply?

A
  • 1231 Gain = LTCG
  • 1245 Gain = Ordinary
  • Casualty Gain = LTCG
63
Q

When does section 1245 Depreciation Recapture Losses apply?

A
  • 1231 Loss = Ordinary
  • 1245 Loss = N/A
  • Casualty Loss = Ordinary
64
Q

When does Involuntary Conversion result in a gain?

A

If proceeds not completely reinvested:

  • Gain is LESSER of realized Gain
    OR
  • Amount not reinvested.
65
Q

What conditions must be satisfied for a taxpayer to Expense a depreciable personal property?

A
  • Property must be purchased for use in the taxpayer’s active trade/business
  • Property must be purchased from an unrelated party

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