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REG 4 BK Flashcards

1
Q

Eye of the Tiger

What is the amount of the unified estate and gift tax credit? What amount of gifts does the credit effectively exempt from gift tax?

A

$2,081,800 is the amount of the credit. This effectively exempts $5,340,000 in gifts from gift tax.

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2
Q

Eye of the Tiger

How does the unified estate and gift tax credit work?

A

If you exceed the annual gift tax exclusion amount in any year, you can pay tax on the excess or use the unified credit to avoid paying tax. The unified credit allows you to give away $5,340,000 in gifts during your lifetime without having to pay gift tax. If you use the credit, however, it reduces the amount available to offset estate tax upon death. This is why it is the unified estate and gift tax credit.

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3
Q

Eye of the Tiger

What traits must a gift have to qualify for the annual exclusion?

A

It must be a present interest, a complete gift, and under $14k/$28k unless it meets one of the unlimited exclusions.

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4
Q

Eye of the Tiger

Describe the taxation of a gift to a recipient.

A

Nontaxable= NBV

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5
Q

Eye of the Tiger

Define a revocable gift.

A

A gift where the donor has the power to revoke it or to change the beneficiaries.

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6
Q

Eye of the Tiger

For what kinds of gifts is there an unlimited exclusion?

A

Unlimited charitable and marital exclusion (ie the 2 people who “rule” your life), unlimited exclusion for payments made directly to an educational institution or to a health care provider for medical care.

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7
Q

Eye of the Tiger

What are the deductible discretionary expenses for an estate?

A

Unlimited charitable deduction and unlimited marital deduction.

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8
Q

Eye of the Tiger

Name some nondiscretionary expenses that are deductible to an estate. Where are these deducted?

A

Medical expenses above 10% of AGI and admin expenses of settling the estate. These are deductible on the final income tax return of the decedent or the estate return.

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9
Q

Eye of the Tiger

Describe the taxation of estate distributions.

A

Deductible to the estate, taxable to the beneficiary.

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10
Q

Eye of the Tiger

Define “adjusted tax-exempt” interest for estates.

A

The amount of tax-free interest income reduced by any interest/investment expenses related to the tax-free income.

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11
Q

Eye of the Tiger

What is the gain recognition for a sale of a partnership interest? How about for complete withdrawal?

A

Sale of partnership interest— Gain= sales price-basis, complete withdrawal— Gain only to the extent that money received exceeds basis.

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12
Q

Eye of the Tiger

When a partner liquidates via sale of his interest, how is taxation considered with regard to “hot assets?”

A

The partner’s share of “hot assets” represent ordinary income to him in this instance.

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13
Q

Eye of the Tiger

What is the “stopping point” of nonliquidating and liquidating distributions?

A

Nonliquidating—stop at basis of zero, Liquidating– must bring basis to zero and “zero out” account

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14
Q

Eye of the Tiger

Nonliquidating distribution and effect on partner’s basis?

A

It reduces his basis by the NBV of property distributed.

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15
Q

Eye of the Tiger

How to calculate partner’s basis?

A

Partner’s basis= capital account + partner’s share of liabilities. Capital account = beginning cap acct + % share of all income -% share of all losses - distributions (ie withdrawals) = Ending capital account

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16
Q

Eye of the Tiger

Outside basis vs inside basis?

A

Outside basis= partner’s basis in the partnership Inside basis= partnership’s basis in all assets it owns

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17
Q

Eye of the Tiger

What is the holding period for the partner?

A

If the property contributed is an ordinary income asset like inventory, then the holding period starts anew upon contribution. If the asset contributed is a Sec 1231 or a capital asset, the partner’s holding period includes the carryover holding period of the asset.

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18
Q

Eye of the Tiger

What gain does a partner recognize when he sells his assets?

A

The initial gain (FMV-basis) upon contribution is allocated to him.

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19
Q

Eye of the Tiger

Describe personal property recapture for Section 1245 personal property.

A

up to NBV— no gain/loss (basis/cost recovery). Up to A/D— ordinary income (“depreciation recapture”). Above A/D— Sec 1231 capital gain. Losses are treated as ordinary losses. (Capital gains and losses are classified as “Section 1231 gains and losses”).

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20
Q

Eye of the Tiger

How are net Section 1231 losses treated?

A

As ordinary losses.

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21
Q

Eye of the Tiger

How are corporate capital gains taxed?

A

At the same rate as ordinary income.

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22
Q

Eye of the Tiger

How are individual short-term capital gains taxed?

A

As ordinary income.

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23
Q

Eye of the Tiger

What is the holding period for a related party transaction?

A

It starts with the new owner’s period of ownership.

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24
Q

Eye of the Tiger

How to calculate revenue with an installment sale?

A

Gross profit/sales price * collections (ie gross profit % times collections)

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25
Q

Eye of the Tiger

Are losses recognized on involuntary conversions? What generates a loss?

A

Yes, always. A loss is generated when proceeds received are less than the basis of the destroyed property.

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26
Q

Eye of the Tiger

How do you calculate the basis of a new building with an involuntary conversion?

A

Cost of new building minus gain on conversion not recognized = basis of new building

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27
Q

Eye of the Tiger

Statute of limitations on involuntary conversions for personal property? For business property?

A

personal property– reinvestment must occur within 2 years after the close of the taxable year in which any part of the gain was realized and be in property “similar or related in use.” It’s the same rule for business property, except the limitation is 3 years from year end.

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28
Q

Eye of the Tiger

What happens with the Homeowner’s Exclusion for a change in place of employment, health, etc. and the homeowner hasn’t lived in the property 2 out of the last 5 years?

A

The homeowner gets a partial exclusion, calculated as the number of months of qualifying ownership divided by 24 times the qualifying exclusion per filing status.

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29
Q

Eye of the Tiger

What happens if a homeowner engages in unauthorized use of a property and rents it out for 2 years without occupying it while owning it for 4 years?

A

The gain on sale is reduced by half (2/4 * amount of gain) to determine the amount of gain eligible for exclusion.

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30
Q

Eye of the Tiger

How much is a widow entitled to with the Homeowner’s Exclusion?

A

She gets the full $500,000 exclusion provided she sells the home within 2 years of the death of her spouse.

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31
Q

Eye of the Tiger

What is the exclusion amount if only one spouse meets the use requirement?

A

$250,000

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32
Q

Eye of the Tiger

Who must meet the use requirement with respect to the Homeowner’s Exclusion? Who must meet the ownership requirement?

A

Both spouses must meet the use requirement. Only one spouse needs to meet the ownership requirement.

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33
Q

Eye of the Tiger

What are the gains that are never taxed?

A

“HIDE IT” mnemonic— Homeowner’s Exclusion, Involuntary Conversions, Divorce Property Settlements, Exchanges of like-kind, Installment Sales, Treasury Stock

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34
Q

Eye of the Tiger

What are some examples of noncapital assets?

A
  1. Property normally included in inventory or held for sale to customers in the ordinary course of business 2. A/R and notes receivable 3. Depreciable personal property and real estate used in a trade or business (Sec 1231, 1245, 1250)
35
Q

Eye of the Tiger

What is a capital asset?

A

All tangible property that contributes to business profit which can’t be easily converted into cash. It is usually held for a long period. Examples include real estate, equipment, etc.

36
Q

Eye of the Tiger

When a partnership is terminated, what basis does the partner assume for distributed property? What is the holding period of the property?

A

Upon termination of a partnership, a partner’s basis in the property distributed is equal to the partner’s basis in the partnership interest reduced by any money received. The holding period of the property includes the partnership’s holding period.

37
Q

Eye of the Tiger

What is the carryforward for partnership losses?

A

Indefinite, and remains suspended until basis becomes available to offset.

38
Q

Eye of the Tiger

What is the basis of property contributed to the partnership?

A

The partner’s basis plus any gain recognized by the partner on the contribution.

39
Q

Eye of the Tiger

When does a partnership cease to exist for tax purposes?

A

When operations cease, when 50% + of the capital and profits of the partnership are sold or exchanged within 12 months, or when there are fewer than 2 partners (the partnership becomes a sole proprietorship).

40
Q

Eye of the Tiger

What is the limit to a partner’s basis for distributed property?

A

It may not be greater than the basis of the partner’s entire interest in the partnership.

41
Q

Eye of the Tiger

What are the 3 ways in which a partner may liquidate his partnership interest?

A

complete withdrawal, sale of partnership interest, and retirement or death.

42
Q

Eye of the Tiger

What is the tax consequences of payments to a retiring or deceased partner in liquidation of his entire partnership interest, specifically with regard to payments for his interest in partnership assets?

A

All payments for the interest in partnership assets result in capital gain or loss.

43
Q

Eye of the Tiger

Distributions of cash/property and impact on partner’s basis?

A

They reduce it by the cash or NBV of property distributed.

44
Q

Eye of the Tiger

What is the taxability and impact on basis of partner income and distributions?

A

Income is taxable at FMV and increases basis. Distributions are nontaxable at NBV and reduce basis. (like a “bank account”)

45
Q

Eye of the Tiger

Define guaranteed payments. How are they treated tax-wise?

A

Guaranteed payments are reasonable payments paid to a partner for services rendered without regard to his partner share. They are tax deductible to the partnership and ordinary income to the partner.

46
Q

Eye of the Tiger

What is the effect of depreciation on a home sale?

A

It reduces basis (sales price - basis = gain)

47
Q

Eye of the Tiger

How do you calculate boot received when both parties to an exchange assume a mortgage of the other party?

A

Use net boot received.

48
Q

Eye of the Tiger

How is a long-term loss first allocated to offset gains?

A

The first allocation is to long-term gains (first allocations always go to “gains of the same character”)

49
Q

Eye of the Tiger

How would an asset using the half-year convention be depreciated using the MACRS table if disposed of in year 3?

A

You would use the half-year convention table and divide the year 3 % by 2, because MACRS tables assume a half year in year 1 (year of acquisition), but a full year in year 3. So, since half year convention requires a half year in year placed in service and in the year disposed of, you divide the MACRS table % by 2.

50
Q

Eye of the Tiger

Holding period for gifted assets?

A

General rule is you assume the donor’s holding period. Exception is if FMV at gift date is used as basis, the holding period will start at this point.

51
Q

Eye of the Tiger

How is the income distribution deduction calculated?

A

It is the lesser of the actual distribution or the DNI less adj tax-exempt interest.

52
Q

Eye of the Tiger

How do you calculate DNI?

A

Estate/trust gross income - estate/trust deductions = Adj. Total Inc. + Adj. tax-exempt interest - Capital Gains = DNI

53
Q

Eye of the Tiger

What is the filing deadline for Form 706, the Federal Estate Tax Return?

A

9 months after decedent’s death (it takes 9 months to be born and 9 months to file the death tax return)

54
Q

Eye of the Tiger

What does the gross estate include?

A

The value of all the decedent’s property, including real property, personal tangible property, and intangible property.

55
Q

Eye of the Tiger

How are stock gains classified?

A

Always as capital gains.

56
Q

Eye of the Tiger

What happens if FMV at date of gift is less than the rollover cost basis from the donor?

A

Basis is determined by subsequent selling price.

57
Q

Eye of the Tiger

What is the treatment of a realized loss in a like-kind exchange?

A

Never recognized.

58
Q

Eye of the Tiger

What is the holding period for property inherited upon death?

A

Always long-term, regardless of how long it was held by the decedent.

59
Q

Eye of the Tiger

What kind of property is subject to the mid month convention?

A

Real property.

60
Q

Eye of the Tiger

What kind of property is subject to the half year and/or mid-quarter conventions?

A

Personal property.

61
Q

Eye of the Tiger

What are “hot assets”?

A

Unrealized receivables and appreciated inventory

62
Q

Eye of the Tiger

What is Form 1041? When is it due?

A

Form 1041 is the US income tax return for estates and trusts. It is due the 15th day of 4th month after close of taxable year.

63
Q

Eye of the Tiger

Define real property.

A

Land and all items permanently affixed to it (ie buildings, paving, etc.).

64
Q

Eye of the Tiger

What are the exceptions to gain/loss recognition on contribution of property to a partnership?

A

The value of partnership interest acquired for services rendered is ordinary income to the partner. Also, when the partner’s liabilities that are assumed by others are > his basis, it’s taxable boot and a gain to the partner.

65
Q

Eye of the Tiger

Define a wash sale.

A

When a security is sold for a loss and repurchased within 30 days before or after the sale date.

66
Q

Eye of the Tiger

Define a related party.

A
  1. Bro/sis 2. Hubby/wife 3. Entities more than 50% owned by individuals, corporations, trusts and/or partnerships.
67
Q

Eye of the Tiger

What are the basis rules for related party transactions?

A

Same as gift tax rules.

68
Q

Eye of the Tiger

How is residential rental property depreciated? How about nonresidential real property?

A

Residential rental property– 27.5 years straight line, nonresidential real property– 39 years straight line.

69
Q

Eye of the Tiger

What is the partnership’s basis in contributed property?

A

The carryover basis from the partner.

70
Q

Eye of the Tiger

What is the mid-quarter convention?

A

It replaces the half year convention if > 40% of tp’s property (other than real property) is placed into service in the last quarter of the year. It treats all such property as being placed into service on the mid-point of the quarter and disposed of in the midpoint of the quarter in the quarter of disposal.

71
Q

Eye of the Tiger

What is the mid-month convention?

A

The mid-month convention is used for calculating depreciation of real property. The property is treated as being placed in service in the middle of the month of acquisition and disposed of in the middle of the month of disposal.

72
Q

Eye of the Tiger

What is the half year convention?

A

Six months of depreciation is taken in the year of acquisition and the year of disposal. This applies to all personal property.

73
Q

Eye of the Tiger

What happens to basis with a stock split?

A

Basis is split proportionately with the stock split.

74
Q

Eye of the Tiger

On condemnation of property, when is gain recognized?

A

To the extent that any insurance proceeds are not re-invested.

75
Q

Eye of the Tiger

Define Section 1231 assets.

A

Depreciable or real property used in a trade or business and held for over 12 months (does not include machinery or equipment).

76
Q

Eye of the Tiger

Define Section 1245 assets.

A

Personal property used in a trade or business for over 12 months. Includes machinery, equipment, and office furniture. An example would be a personal auto or a PC.

77
Q

Eye of the Tiger

What is the required tax year for a partnership in absence of an election to adopt an annual accounting period?

A

The same tax year as partners that, in aggregate, have a > 50% interest in the partnership.

78
Q

Eye of the Tiger

What types of items are in the 7 year MACRS class?

A

Office furniture and equipment. “We’re rolling 7’s in the OFE.”

79
Q

Eye of the Tiger

What types of items are in the 5 year MACRS class?

A

Cars, copiers, computers (“CCC”)

80
Q

Eye of the Tiger

Define personal property.

A

Property which is not affixed to the land and can be moved. All property except real property. (ie equipment, office furniture, everything in 5 and 7 year MACRS classes, etc.)

81
Q

General rule for gifts and donee’s basis.

A

The general rule is that the donee inherits the donor’s basis.

82
Q

How are losses and capital gains classified with Section 1245 personal property recapture?

A

Losses are ordinary losses and gains are “Section 1231 capital gains”

83
Q

What types of assets are Section 1231, 1245, and 1250 assets?

A

Noncapital assets

84
Q

What is the difference between partnership distributions and corporate property dividends and basis?

A

Partners’ basis is reduced for distributions at NBV, as they are nontaxable. In a corporation, the shareholder’s basis in a property dividend is FMV. Such a dividend is also taxable at FMV.

BK REG (11 decks)

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