REG Flashcards
(37 cards)
To whom do the uniform capitalization rules not apply?
The uniform capitalization rules do not apply to producers and resellers (who maintain inventories) if the company’s average annual gross receipts (for the past 3 years) do not exceed $26 million.
When more than one asset is purchased for a lump sum, how is the allocated cost of an individual asset calculated?
FMV of asset divided by the FMV of all assets purchased times Lump sum purchase price
Describe the residual method to allocate the purchase price to individual assets in a group of assets acquired.
The residual method allocates purchase price to asset categories up to FMV in the following order:
1. Cash and cash equivalents
2. Near-cash items
3. Accounts receivable, mortgages, credit card receivables
4. Inventory
Assets not listed in 1. through 4. (e.g., equipment, building, land)
Section 197 intangibles
Goodwill and going-concern value
What is the donee’s basis in a gifted property when, on the date of gift, the property’s fair market value is greater than the adjusted basis?
The donee’s basis is the donor’s basis (transferred basis), increased for any gift tax paid attributable to appreciation.
What are the donee’s basis and gain or loss in a gifted property when, on the date of gift, the property’s fair market value is less than the adjusted basis?
The donee has a dual basis for the property:
- Loss basis = the FMV at the date of the gift is used if the property is later transferred at a loss
- Gain basis = the donor’s basis is used if the property is later transferred at a gain
- If the property is later transferred for more than FMV at the date of the gift but for less than the donor’s basis at the date of the gift, no gain (loss) is recognized
What is the depreciable basis of a gifted property if it is converted from personal to business use?
If converted from personal to business use, the basis is the lesser of
- FMV on the date of conversion or
- Transferor’s AB.
What is the basis in and holding period of inherited property?
Basis is the FMV on the date of death or 6 months after if the executor elects the alternate valuation date for the estate tax return. Holding period is automatic Long Term.
What are the recovery periods for (1) computers, office machinery, cars, trucks, and R&E equipment and (2) office furniture and equipment?
MACRS Recovery Period = 5 years @ 200% = Computers, office machinery, cars, trucks, R&E equipment
MACRS Recovery Period = 7 years @ 200% = Office furniture and equipment
What is the mid-year convention?
Under the mid-year convention, personal property is treated as placed into service at the midpoint of
The year acquired and
The year disposed of.
NOTE: The IRS MACRS table incorporates the mid-year convention in the first year but not the year of disposal. Cost recovery in the first year is the product of cost basis and the factor. In the year of disposal, cost of recovery is half of that product.
What is the mid-month convention?
Under the mid-month convention, real property is treated as placed into service at the midpoint of
The month acquired and
The month disposed of.
NOTE: The IRS table incorporates the mid-month convention in the first year but not the year of disposal. Cost recovery in the first year is the product of cost basis and the factor. In the year of disposal, cost of recovery is half of that product.
What is the mid-quarter convention?
The mid-quarter convention applies when over 40% of all personal property is placed in service during the last quarter of the year.
It treats each asset as placed in service at the midpoint of the quarter in which it was placed in service.
What is the recovery period if a property is placed in service and disposed of in the same year?
No depreciation is allowed (recovery period = 0).
Describe the Section 179 expense.
Under Sec. 179, a taxpayer may elect to deduct all or part of the cost of personal property and qualified real property used in the active conduct of a trade or business.
The deduction is no more than
$1,050,000 (this amount is reduced dollar for dollar if the asset acquisitions for the year are over $2,620,000) or
Taxable income from the active conduct of any trade or business during the tax year.
Generally, how are intangible assets amortized for tax purposes?
Over 15 years, using the straight-line method.
How is the periodic depletion expense calculated under cost depletion?
AB in mineral property divided by Estimated mineral units available at year’s start times Mineral units sold during year
How is the periodic depletion expense calculated under percentage depletion?
Percentage depletion is the lower of
- Taxable income before depletion × 50% or
- Gross income × Statute percentage
How is the realized gain or loss from the disposition of property calculated?
Money received (or to be received) \+ FMV of other property received \+ Liability relief – Money or other property given up – Selling expenses – Liabilities assumed = Amount realized – Adjusted basis = Gain (loss) realized
Describe the wash sales rule.
A wash sale occurs when substantially the same securities are purchased within 30 days before or after being sold at a loss.
When a wash sale occurs,
The realized loss is not recognized (disallowed).
The disallowed loss is added to the basis of the security purchased in the wash sale.
The holding period of the security sold is included in that of the security purchased.
Simple Trust
A simple trust is formed under an instrument having the following characteristics:
- Requires current distribution of all its income
- Requires no distribution of the res (i.e., principal, corpus)
- Provides for no charitable contributions by the trust
Complex Trust
A complex trust can:
- Accumulate income,
- Provide charitable contributions
- Distribute amounts other than income
At the beginning of the year, Paul created a $200,000 trust and named his wife Angie as the sole income beneficiary. In addition, principal of $10,000 must be distributed annually to her. What type of trust was created?
A grantor trust is any trust to the extent the grantor is the effective beneficiary. By creating a trust and naming his spouse as the beneficiary, Paul is treated as the effective beneficiary of the trust.
Trust to the extent the grantor is the effective beneficiary
- The income attributable to a trust principal that is treated as owned by the grantor is taxed to the grantor
- The trust is disregarded
a. when the grantor has greater than 5% reversionary interest.
b. a grantor is treated as the owner of a trust
c. taxed on income from a trust in which the income may be applied for the benefit of the grantor
5.2 Exempt status - Excise tax
No substantial part of activities of an exempt organization operated exclusively for scientific purposes may be attempts to influence legislation or a political candidacy. However, most organizations can elect to replace the substantial part of activities with a lobbying expenditure limit. An organization that exceeds the lobbying expenditure limit will be subject to an excise tax of 25% of the excess amount. This scientific organization exceeded its $30,000 limit by $10,000 and is therefore subject to a $2,500 excise tax ($10,000 × 25%)
Regarding deductibility of property taxes, when is it deductible if taxpayer is on cash-basis?
Deductible when paid
Charitable contributions limit is normally what amount aside from years 2020 and 2021?
25% in 2020/2021 but all others are limitation is 10% of TI
