R4 Sims

Question 1

Homebuyer’s credit – special rules that apply

Answer 1

1) Unrecaptured Depreciation is always Section 1250 Gain
2) job transfer is considered “unforeseen circumstance” so can trigger the income exclusion, PRO-RATED. EG – married couple 1 year, so you get 50% * $500K credit excluded.

3) “Qualified Use” rental – you can pro-rate REALIZED Gain based on amnt of years rented
EG:
2yrs/6yrs * $210K realized = $70K to Recognize + 11K Unrecaptured Section 1250 (Depreciation) Gain

Question 2

What is Section 1250 Gain?

Answer 2

Section 1250: this is a recapture of accumulated ACCELERATED depreciation on building in excess of straight-line depreciation, as ordinary income.

There is no 1250 recapture of LOSS – it is all 1231 loss.

Question 3

Should you net cash boot with liability relief boot?

Answer 3

No.

Question 4

What value do you use to begin to compute REALIZED gain?

Answer 4

THE FMV OF THE NEW ASSET

not the basis.

Question 5

What do improvements and real estate commissions do to a basis?

Answer 5

INCREASE IT

Question 6

Section 1245 Rule?

Answer 6

All gain recaptured beyond personal property used in business (beyond depreciation) is ORDINARY Gain.

Section 1245: RECOGNIZE the lesser of Depreciation, or Gain Recognized on Sale
for recapture purposes

EG: Depreciation was $30K. Gain recognized on sale was $20K. Choose $20K.

Question 7

Sec 179

Answer 7

Under Sec. 179, a taxpayer may EXPENSE for the year, certain depreciable assets within a limitation

(EG Limitation is 108, you have a depreciable asset of 100, you can expense it all that year under 179.)

Has a CAP PHASE-OUT when qualified purchases exceed $2Mil during taxable year (Dollar for Dollar phase)

If Sec 179 hits in a year of total taxable loss, the deduction allowed for tax purposes carries forward.

Question 8

Wash Sale - allowed or disallowed for tax purposes?

Answer 8

A: DISALLOWED

Wash sales happen during FIRST realized loss. When it comes to buying/selling the second, you treat the per share loss (EG $40) times amount of stock bought (EG 25 shares)

40*25 = $1000 wash sale loss claimed

Question 9

A: What happens when, at the date of gift, the gift’s FMV is LESS THAN the donor’s basis?

B: What happens when, at date of gift, the gift’s FMV is GREATER THAN donor’s basis?

Answer 9

A: gift base: $8 ; date of gift FMV: $5
in between

B: DONEE uses DONOR basis “Rollover Cost Basis”
eg; gift base $8; date of gift FMV $10
this ensures you recognize profit

Question 10

What happens in stock splits for tax purposes?

Answer 10

Keep ORIGINAL FMV and spread BASIS
EG:
600 --> 2 for 1 (FMV 18000, $30/sh)
1200, $15/sh -->3 for 2
(1200*3/2) = 1800, $10, sh

Sell 1225 for $9/sh? (10-9)*1225