Sales and Disposition of Assets

Question 1

What are 3 classification of assets?

Answer 1

Ordinary, Capital, Section 1231

Question 2

What are ordinary assets?

Answer 2

Accounts and notes receivable.
Inventory.
Property held for sale.
Trade or business assets owned for a yr or less.

Question 3

What are section 1231 assets?

Answer 3

Trade or business assets owned for more than a yr.

Question 4

What are capital assets? Examples?

Answer 4

Any assets other than ordinary or section 1231 assets.

*Those used in one’s personal activities, investments, goodwill, and patents.

Question 5

What does “property transactions” include? Examples? What must tax payer determine?

Answer 5

Sales or disposition of assets.
Sales, exchanges, trading, casualties, condemnations, thefts, and retirements.
Realized gain or loss.

Question 6

How are realized gain/loss computed?

Answer 6

Amount realized - adjusted basis = realized G/L

Question 7

What does amount realized include?

Answer 7

(Cash received + FMV of any property received + Liabilities assumed by the buyer) - selling expenses.

Question 8

What is adjusted basis computed?

Answer 8

= Cost (liabilities or expenses re: acquisition) - (Depr / Amortization / Depletion) + Capital improvement (not repairs).

Question 9

What does “cost” mean? Examples?

Answer 9

All expenditures required “to place an asset in service”

Transportation, installation, testing, taxes.

Question 10

In general, which type of gain or loss will not be recognized?

Answer 10

Losses from the sale or disposition of all personal use assets.

Question 11

What are 2 cases cost is not used?

Answer 11

Gifts and inheritance.

Question 12

How does the basis for gift determined?

Answer 12

Adjusted basis + [gift tax x (unrealized appreciation: FMV - adjusted basis)/(FMV - annual exclusion from tax law)]

Question 13

Gift: can built-in gain be transferred? What about built-in loss?

Answer 13

Yes.

No.

Question 14

What is “gain basis”?

Answer 14

Adjusted basis of the donor.

Question 15

What is “loss basis”?

Answer 15

Lower of; FMV or Adjusted basis of the donor

Question 16

What is “depreciation basis”?

Answer 16

= gain basis.

Question 17

How does gift tax influence the adjusted basis?

Answer 17

Increase the basis.

Question 18

Gift: When can a gain recognized? Loss? If it’s sold between the amount of gain basis and loss basis?

Answer 18

Gain: When the item is sold more than the gain basis.
Loss: sold less than the loss basis.
Between: No gain/loss recognized.

Question 19

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?

Answer 19

Adjusted basis of donor.

Gain basis: basis of the donor. Loss basis: lower of FMV or the donor’s basis.

Question 20

What is the holding period under gain basis? Loss basis?

Answer 20

G: include donor’s period.
L: Begins at the date of gift.

Question 21

Inheritance: what is the donee’s basis?

Answer 21

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.

Question 22

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?

Answer 22

Original basis.

Question 23

Is property received from decedent long term asset or short term?

Answer 23

Long term regardless of holding period.

Question 24

When individual’s losses for personal use are deductible?

Answer 24

When the losses qualify as casualty or theft losses.

Question 25

Which assets are depreciable?

Answer 25

Sec. 1231 assets.

Question 26

Ex) What would be a gain or loss?
Stock was gifted (Basis: $4,000, FMV: 3,000). Sold the stock for $3,500.

What would be the seller’s basis?

Answer 26

No gain or loss is recognized on the sale of property acquired by gift if the basis for loss ($3,000) results in a gain and the basis for gain ($4,000) results in a loss.

$4,000. If property acquired by gift is sold at a gain, its basis is the donor’s basis ($4,000), increased by any gift tax paid attributable to the net appreciation in value of the gift