Reg Flashcards - Chapter 4
Simple trust
- Only make distributions out of current income
- Required to distribute all of its income currently
- Cannot take a deduction for charitable contributions
- Entitled to a $300 exemption
Grantor trust
- Grantor (person who established) retains control
- Disregarded entity for income tax purposes (reported on grantor tax return)
- Can be qualified shareholder of S corp
- Generally not included in taxable estate of grantor upon his death
Complex trust
- May accumulated current income
- May distribute principal
- May deduct charitable contributions
- Permitted an exemption of $100 in arriving at its taxable income
Gift tax exclusions
- Unlimited exclusions (no $14,000 limitation):
a. Payments made directly to educational institution
b. Payments made directly to health care provider for medical care
c. Charitable gifts
d. Marital deductions
Filing deadline for estate tax
9 months after death
Alternate valuation date
Earlier of:
- Date property is distributed to heirs
- 6 mos after the date of death
Generation-skipping transfer tax
Applies when individuals transfer property to a person who is two or more generations younger than the donor or transferor.
Tax rate = highest estate and gift tax rate in effect. Exemption amount is $5,340,000/person
Exception to gift tax FMV
If FMV < original cost of gift:
Sell higher than donor basis = use donor basis to determine gain
Sell between donor basis and lower FMV = no gain or loss
Sell lower than lower FMV = use lower FMV at date of gift to determine loss
Installment sale tax method
Gross profit earned = Cash collections * gross profit percentage
Depreciation conventions for different types of assets
Machinery and Equipment = 1/2 year or mid-quarter
Real Estate = Mid-month
Section 1231 assets
Depreciable personal and real property used in a taxpayer’s trade or business and held for over 12 months
Section 1245 assets
Personal properties (machinery and equipment) used in trade or business for over 12 months Only focus is on gains
Section 1245 recapture
Lesser of gain recognized or all accumlated depreciation is recaptured as ordinary income
Any remaining gain is a section 1231 gain
Section 1250 assets
Real properties used in a trade or business over 12 months
Only focus is on gains
Section 1250 recapture
Recaptures only depreciation taken on real property that is excess of straight line
Section 291 depreciation recapture
20% of lesser of the recognized gain or the accumulated depreciation
“Hot Assets”
Gain that represents partner’s share of “hot assets” is treated as ordinary income in sale of partnership interest
- Unrealized (cash basis) receivables
- Appreciated inventory
- “Recapture income”
Estate taxes
- Income tax = due annually based on income earned during the year while estate is in existance
- Estate tax = one-time-only transfer based on the value of the decedent’s estate
DNI
Distributable net income for estates
Limitation on the amount the trust or estate can deduct with respect to distributions to beneficiaries
Income distribution deduction for estates
Lesser of:
- Actual distribution to beneficiary
- DNI (less adjusted tax-exempt interest)
Estate income tax exemption
$600
Unified Estate and gift deduction
5,340,000/person
Estate tax due
40% * (tenative tax base at death - 5,340,000)
Gift tax exclusion not applied to
- Postponment of right to use, possess, or enjoy property
2. Incomplete gifts (conditional or revocable)
