Sales and Disposition of Assets Flashcards
What are 3 classification of assets?
Ordinary, Capital, Section 1231
What are ordinary assets?
Accounts and notes receivable.
Inventory.
Property held for sale.
Trade or business assets owned for a yr or less.
What are section 1231 assets?
Trade or business assets owned for more than a yr.
What are capital assets? Examples?
Any assets other than ordinary or section 1231 assets.
*Those used in one’s personal activities, investments, goodwill, and patents.
What does “property transactions” include? Examples? What must tax payer determine?
Sales or disposition of assets.
Sales, exchanges, trading, casualties, condemnations, thefts, and retirements.
Realized gain or loss.
How are realized gain/loss computed?
Amount realized - adjusted basis = realized G/L
What does amount realized include?
(Cash received + FMV of any property received + Liabilities assumed by the buyer) - selling expenses.
What is adjusted basis computed?
= Cost (liabilities or expenses re: acquisition) - (Depr / Amortization / Depletion) + Capital improvement (not repairs).
What does “cost” mean? Examples?
All expenditures required “to place an asset in service”
Transportation, installation, testing, taxes.
In general, which type of gain or loss will not be recognized?
Losses from the sale or disposition of all personal use assets.
What are 2 cases cost is not used?
Gifts and inheritance.
How does the basis for gift determined?
Adjusted basis + [gift tax x (unrealized appreciation: FMV - adjusted basis)/(FMV - annual exclusion from tax law)]
Gift: can built-in gain be transferred? What about built-in loss?
Yes.
No.
What is “gain basis”?
Adjusted basis of the donor.
What is “loss basis”?
Lower of; FMV or Adjusted basis of the donor
What is “depreciation basis”?
= gain basis.
How does gift tax influence the adjusted basis?
Increase the basis.
Gift: When can a gain recognized? Loss? If it’s sold between the amount of gain basis and loss basis?
Gain: When the item is sold more than the gain basis.
Loss: sold less than the loss basis.
Between: No gain/loss recognized.
What is the gain/loss basis of the donee when the basis of donor is less than the FMV at the date of gift? The basis is more than FMV?
Adjusted basis of donor.
Gain basis: basis of the donor. Loss basis: lower of FMV or the donor’s basis.
What is the holding period under gain basis? Loss basis?
G: include donor’s period.
L: Begins at the date of gift.
Inheritance: what is the donee’s basis?
FMV at the date of death or FMV on the alternate valuation date (date distributed or 6 mo after DOD) if selected by the executor.
FMV at the date of distribution only if alternate valuation date is elected and distributed within 6 mo of DOD. Otherwise, FMV at the 6 months mark.
Inheritance: Basis if property was given to the person who passed within a year and the property came back to the original donee or spouse?
Original basis.
Is property received from decedent long term asset or short term?
Long term regardless of holding period.
When individual’s losses for personal use are deductible?
When the losses qualify as casualty or theft losses.
