REG 2

Question 1

Property Gift Basis

Answer 1

Gain basis = adjusted basis of the donor (also used as depreciable basis)
Loss Basis = lower of FMV at date of gift or adjusted basis of the donor

If property is received as a gift, and the property’s FMV on date of gift is used to determine a loss, the donee’s holding period begins when the gift was received

Question 2

Gift Tax Exemption

Answer 2

If the asset is sold for $ between adjusted basis and FMV at the time of gift, no gain or loss is recognized.

Example: basis $40, FMV : $30 and sold at $36

Question 3

What is Section 1221 assets

Answer 3

inventory, accounts receivable and depreciable property or real estate used in business.

Question 4

Capital gain rollforward rules

Answer 4

cannot be rollback to previous years. roll forward indefinitely max $3,000 loss / year

Question 5

Section 1244

Answer 5

permits a shareholder to deduct an ordinary loss of up to $50,000/100,000 (married) per year
not available if the shareholder sustaining the loss was not the original holder of the stock.

Question 6

C corporation net capital loss carryback/forward rules

Answer 6

Carryback 3 years, carryforward 5 years

Question 7

Section 1245 recapture (to ordinary income)

Answer 7

Section 1245 property is all depreciable property other than buildings
lesser of gain recognized or all depreciation taken
ordinary income to the extent depreciation was taken
No recapture if sold at loss

Question 8

Section 1231

Answer 8

provide capital gain treatment to a net gain generated from transactions involving involuntary conversions and the disposition of business assets.
include realty and depreciable property but exclude capital assets, inventory, accounts receivable, copyrights, and government publications.
Loss is treated as ordinary income

Question 9

Section 1250 recapture

Answer 9

applies to buildings (depreciable real property)
applies only when accelerated depreciation method is used
does not apply when property is disposed of at a loss..
lower of additional depreciation or recognized gain is ordinary income
The excess gain, if any, is Section 1231 gain.

Question 10

depreciation rules for realty vs. personalties

Answer 10

200% declining balance or 150% declining balance is used for personalty; straight line is used for realty
Realty - mid-month convention
Personalty - mid-year convention

Question 11

Section 179 election

Answer 11

to expense a limited amount of tangible personalty if used in a trade activity
Code-Section 1245 property is eligible for the Code-Section 179 election
taxpayers may expense a statutory amount of the cost of property used by the taxpayers in active trade or business. The statutory amount is $1,080,000 for 2022 OR up to the income amount.
the $1,080,000 maximum is reduced dollar for dollar by the cost of qualifying property placed in service during the taxable year that exceeds $2,700,000.

Question 12

Intangible assets depreciation

Answer 12

180 months (15 years) - month convention

Question 13

MACRS Building dpereciation

Answer 13

nonresidential property= 39 years, straight line with midmonth covention
residential property = 27.5 years straight line with midmonth covention

Question 14

Amortization period for a covenant not to compete related to business acquisition

Answer 14

15 years

Question 15

Like Kind Exchanges

Answer 15

Losses are never recognized
Recognized gain is the lesser of realized gain or boot received

Question 16

Wash Sales

Answer 16

losses from the sale of securities are not recognized if similar securities are purchased within 30 days of the sale
the basis of the acquired like-kind property reflects the deferred gain resulting from the like-kind exchange, and is equal to the basis of the property transferred increased by the amount of gain recognized , and decreased by the amount of boot received

Question 17

MACRS for furniture and fixtures

Answer 17

qualify as seven-year property and under MACRS will be depreciated using the 200% declining balance method.
a half-year convention applies to the year of acquisition. However, the mid-quarter convention must be used if more than 40% of all personal property is placed in service during the last quarter of the taxpayer’s taxable year.

Question 18

Section 291

Answer 18

Sec. 1250 recaptures gain as ordinary income to the extent of “excess” depreciation (i.e., depreciation deducted in excess of straight line). The total gain less any depreciation recapture is Sec. 1231 gain. Sec. 291 requires that the amount of ordinary income on the disposition of Sec. 1250 property by corporations be increased by 20% of the additional amount that would have been ordinary income if the property had instead been Sec. 1245 property.

Question 19

MACRS depreciation for furniture and fixtures om business

Answer 19

even-year property and under MACRS will be depreciated using the 200% declining balance method.
Normally, a half-year convention applies to the year of acquisition
mid-quarter convention must be used if more than 40% of all personal property is placed in service during the last quarter of the taxpayer’s taxable year.

Question 20

capital asset definition

Answer 20

The definition of capital assets includes personal-use property but excludes property used in a trade or business (e.g., delivery truck, land used as a parking lot).

Question 21

Limit of Capital Loss offset against ordinary income

Answer 21

$3,000/year capital loss can be used to offset ordinary income

Question 22

Alternate valuation method for inheritance

Answer 22

Fair Market Value six months after the date of the death

Question 23

Treatment of carried back/forward net capital loss

Answer 23

treated as a short-term capital loss, whether or not it was short term when sustained

Question 24

Treatment of bond premium amortization for individual taxpayer

Answer 24

may reduce the bond’s basis by the amortization of the premium.
the amount of bond premium attributable to the tax year may be used to offset interest received on the bond
cannot be used as an itemized deduction

Question 25

Alimony rules

Answer 25

Prior to 2019, alimony is taxed to the recipient and the payor is granted a deduction (“for AGI”)
2019 and after, alimony is not taxed to the recipient and the payor is not granted a deduction (“for AGI”)

Question 26

Social Security Benefits

Answer 26

generally, SSB are not included in income.
If the taxpayer’s provisional income (PI) exceeds a specified amount, up to 85% of the benefits may be included in income
PI = AGI + tax-exempt interest + 50% (SSB)
the taxable amount of SSB is the lesser of
.85 × SSB
.85 × (PI - 34,000)

Question 27

QBI (Qualified Business Income)

Answer 27

20% income deduction from pass-through entities (partnerships, limited liability companies, and S corporations) and sole proprietorships.
exception: specified service trades or businesses (any business where the principal asset is the reputation of an employee or owner)
the deduction is limited to 20% of the excess of the taxpayer’s taxable income over the taxpayer’s net capital gains
QBI deduction limit:
50% of the taxpayer’s share of the W-2 wages paid by the business, or
25% of the taxpayer’s share of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis of qualified property.

Question 28

LT Capital Gain calculation for Nontaxable Stock Dividend

Answer 28

The basis will change as follow: old basis / (existing shares + new shares)

LTCG will be recognize if selling value exceeds: # of sold shares * new basis calculated above

Question 29

Recognizing gain from installment method sale

Answer 29

recognized income = cash collected × (gross profit/contract price)

Question 30

Corporation tax for a short period calculation

Answer 30

Annualize income and calculate the tax on annualized income, then multiply the computed tax by the number of months in the short period divided by 12.

Question 31

Personal Casualty Loss calculation vs business

Answer 31

Lower of decline in FMV or AB of property
-Insurance Reimbursements
− $100 per casualty
− 10% × AGI
=Casualty loss deduction

Business - no limitation