REG - Property

Question 1

what is the De Minimis safe harbor rule?

Answer 1

If a company has a written policy to expense certain property as of the beginning of the year. And it has an applicable financial statement (AFS), the de minimis rule allows the company to expense items costing up to $5,000 each.
Taxpayers without an applicable AFS can deduct items that cost up to $2,500.

Question 2

What basis is used for gifts by the donee?

Answer 2

• Property acquired as a gift generally retains the rollover cost basis as it had in the hands of the donor at the time of the gift.
• If the future selling price > than the donor’s cost basis, the donee’s basis is the donor’s cost basis.
• If the future selling price is < the FV of the property at the time of the gift, the donee’s basis is the FV of the property at the time of the gift.
• If the future selling price is < the donor’s cost basis but > the FV of the property at the time of gift, neither gain nor loss is recognized by the donee on the sale of the property.

Question 3

What are capital assets?

Answer 3

Capital assets are assets held and used for
- personal or
- investment

They do not include.
- assets held for sale to customer
- receivables arising from sale to customers
- assets used in the trade or business

Question 4

What is a wash sale?

Answer 4

A wash sale is when a security is sold for a loss and is repurchased within 30 days before or after the sale date.
No gain or loss is recognized on a wash sale.

Question 5

What is the MARCS depreciation method?

Answer 5

MACRS stands for Modified Accelerated Cost Recovery System, a depreciation method for property that allows you to deduct the cost of improvements and the basis of your property over a certain recovery period. Ignores Salvage.
For 3, 5, 7 & 10 yrs property PIS after 1987 - 200% DDB.
For 15, 20 yrs, property PIS - 150% DDB.

Question 6

What is the half year convention cost recovery system?

Answer 6

The half year convention applies to personal property. Personal property PIS or disposed of during the year is treated as PIS or disposed of halfway through the year.
The personal property is allowed 6 months of depreciation regardless of the date acquired.

Question 7

What is the mid quarter convention cost recovery system?

Answer 7

If more than 40% of property is PIS the last qtr. of the year a mid-qtr. convention is applied. Personal property PIS or disposed of during the year is treated as PIS or disposed of halfway through the qtr. in which it was disposed.

Question 8

What is the mid-month convention cost recovery system?

Answer 8

The mid-month convention is applied for real property. One half month is taken the month the property is PIS or disposed..

Question 9

How is inherited property handled for tax purposes?

Answer 9

1. Ignore basis
2. Always classified as long-term regardless of holding period.

Question 10

What are the rules for Section 179 Deduction?

Answer 10

• Dollar for dollar phase out when purchase exceeds $2,890,000.
• Maximum section 179 Deduction is $1,160,000.
• 179 Deduction is not allowed for residential property

Question 11

What is bonus depreciation and how used?

Answer 11

Bonus depreciation is a tax incentive that allows business owners to write off a larger chunk of fixed asset purchases in the year they are purchased and placed in service.
New or used business property with a depreciable life of 20 years or less is eligible for bonus depreciation.
Bonus depreciation is 80 percent of the depreciable basis of the qualifying property. The remaining basis is depreciated using MACRS.

Question 12

What is the depreciation basis of assets converted from person to business use?

Answer 12

The depreciable basis for assets converted from personal to business use is the lesser of the cost and the fair market value (FMV) of the asset at the date of conversion.
Assets that are converted from personal use to business use are not eligible for bonus depreciation.