R4- Property Transactions Flashcards
What is the basic calculation for Basis/Amount Realized in property?
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.
What is the recipient or donee’s basis on gifted property Sold at a Gain?
- Use donor’s basis
What is the Basis of Inherited Property?
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.
What is the holding period on a stock dividend?
Holding period of new stock received from a dividend takes on the holding period of the original stock
What property is eligible for like-kind exchange treatment?
Real or Personal for personal business property only
US property only
What is BOOT in a like-kind exchange?
Cash received
+ unlike property received
+ liability passed to other party
In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?
DO NOT subtract the boot paid amount from the cash received
Ignore the boot paid amount from the mortgage completely
What is an Involuntary Conversion?
- 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
What are the requirements for exclusion of gain on a primary residence?
Must live there 2 out of 5 years
What is a Wash Sale?
30 Day rule applies
Disallowed loss adds to basis of new stock
New stock takes on date of acquisition of old stock
Who is considered a related party in a property transaction?
- Ancestors; siblings; spouse; descendants;
- Corporation or Partnership where you’re a 50% shareholder
- In-laws are NOT related parties.
How are capital losses taken in a corporation?
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
What assets are NOT capital assets?
Inventory; Business interest; Accounts Receivable; Covenant not to compete
Goodwill IS a capital asset
What are the steps in applying a capital gain or loss?
Net all STCG and STCL
Net all LTCG and LTCL
Add together
Deduct $3;000
How much ordinary income can be offset by an INDIVIDUAL’s capital losses?
$3;000 per year.
Unused is carried forward and taken $3;000 each year.
No carryback is allowed.
Which property is governed by section 1231?
Real or Personal Business Property held more than a year
Inventory is never 1231 Property
How are section 1231 Gains handled?
- Net Gain = Combine with other 1231 Gains
- If 1231 Gains exceed losses; treat at LTCG
How is section 1245 Depreciation Recapture handled?
- To the extent of depreciation
- Treat as ordinary gain
- Remainder is 1231 gain; which is LTCG
- There are no 1245 Losses
What property qualifies for section 1250 treatment?
1250 property is Real Estate that is not 1231 Property
When are 1231; 1245 and 1250 G/L always ordinary?
When the asset is held less than one year.
What is (are) the depreciation convention(s) for personal property?
Mid-year & Mid-quarter
When is the mid-quarter convention used?
For depreciation when 40% or more of all purchases occur in 4th quarter.
What depreciation convention is used for real property?
Mid-month
What depreciation life and convention are used for leasehold improvements?
15 year straight line (S/L)
