REG 3

Question 1

What is the general rule involving property acquired? (M1)

Answer 1

Property acquired as a gift generally retains the rollover cost basis as it had in the hands of the donor.

**Exception - if the FMV at the date of gift is lower than the rollover cost basis from the donor, the basis depends upon the donee’s future selling price of the asset. The asset may sell for (1) greater than the donor’s basis, (2) between the donor’s basis and the lower FMV at the date of gift, or (3) less than the FMV at the date of gift.

Question 2

What is the pass key for determining basis? (M1)

Answer 2

Sell Higher - Use “donor’s basis” to determine gain
Donor Basis ————————-
Sell between - No gain or loss
Lower FMV at date of gift—————————
Sell lower - use “lower FMV at date of gift” to determine loss

Question 3

What is the “De Minimis Rule”? (M1)

Answer 3

Companies can make annual expense election regarding expenditures to acquire or produce property if they have a capitalization policy in effect at beginning of year.

• The capitalization policy must be written accounting policy that treats as an expense in the FS: prop purchased under a certain dollar amount, and/or…property with an economic useful life of 12 months or less.
• If a company has an applicable financial statement, the max amount allowed for federal tax purposes is $5,000 per asset.
• If a company does not have an applicable FS, the max amount is $2,500 per asset after January 1, 2016.

Question 4

What qualifies as a small taxpayer? (M1)

Answer 4

Qualifying small taxpayers can expense costs related to an eligible building if they do not exceed the lesser of 2 percent of unadjusted basis of the building or $10,000.

• A qualifying small taxpayer is a taxpayer with average annual gross receipts of $10 million or less during the 3 preceding tax years.
• An eligible building is any building with an unadjusted basis that does not exceed $1 million.

Question 5

What is the calculation for gain/loss “Realized”? (M2)

Answer 5

Gain/Loss Realized = Amount realized (FMV of new prop + boot received OR minus boot paid) - adj basis of prop given up

Question 6

What is the calculation for gain/loss “Recognized”? (M2)

Answer 6

Gain/Loss Recognized = the lesser of realized gain…OR boot received

Realized loss is never recognized in a like-kind exchange.

Question 7

What is the calculation for “basis of property”? (M2)

Answer 7

Basis of new property = Adj basis of prop given up + Gain recognized - Boot received ( or + boot paid)