Special Deck - Bits and Pieces 1

Question 1

In a like-kind exchange involving multiple properties, what is considered boot?

Answer 1

Any unlike item in the exchange; items other than the like-kind items

Question 2

What is the difference between Notice and Race-Notice?

Answer 2

With Notice a subsequent good-faith buyer wins out. WIth Race-Notice, a subsequent good-faith buyer wins out only if they record first

Question 3

If one person sells mortgages to multiple people, which ones win out?

Answer 3

The mortgages that are recorded. The purpose for recording a mortgage is to protect against third parties who are interested in the property with no knowledge of the prior mortgage

Question 4

What are the limitations on the charitable giving of property for individual?

Answer 4

30% of gross income.

Question 5

In general, the UCC sales article applies what type of sales transactions?

Answer 5

Sales between non-merchants IN GENERAL

Question 6

What time limit is involved for a contract to be covered by the Statute of Frauds?

Answer 6

Cannot be completed in less than a year.

Question 7

What does Article 2 of the UCC (Uniform Commercial Code apply to?

Answer 7

The sale of goods.

Question 8

What are the backwards and forwards limits you can go on computing the present year’s NOL?

Answer 8

You CAN’T use carryback or carry forward amounts in computing an NOL for any year.

Question 9

S Corps:

1. Who is allowed to own stock/ownership in and S Corp?
2. Who is an S Corp allowed to own stock/ownership in?

Answer 9

1. S Corp can be a partner in a partnership, stock in a Chapter C, or 100% of a qualified subchapter S Corp
2. Shareholders in an S Corp must be individuals, estates and trusts.
3. No nonresident alien shareholders
   4.

Question 10

In calculating value of common and preferred stock after a split, what are the basics?

Answer 10

You need to take the amount of shares of each stock a multiply it by the price.

For example I purchased 100 shares of Common stock for $60/sh, then I received a stock dividend of Preferred stock 10 shares at $100/sh. The market values of the stocks on that date are $75/sh common and $150/sh preferred. How to figure basis:

Common stock Market value=$75 x 100sh = $7500

Preferred stock Market vslue=$150 x 10sh = $1500

total value $9,000

common to total ratio ia 7500/9000 or 5/6. Original basis of common $6,000*5/6=$5,000 final basis, leaving remainder of $1,000 as preferred st basis

Question 11

When small business stock is held for more than 5 years how much taxable gain is excludible?

Answer 11

50% of the capital gain, subject ot a limit of the greater of $10 million or 10 times the investor’s stock basis.

Question 12

When an assignment of a contractual agreement is given, does it include assignment of rights or delegation of duties?

Answer 12

It includes BOTH assignment of rights and delegation of duties.

Question 13

In an S Corporation with 2 partners each partner put up $5,000 to the corp to start, and lent it $15,000. Losses for the first year were $90,000. How much loss can each partner deduct from their current years tax return?

Answer 13

The loss is fully deductible to the extent of their basis in the S Corp, which is $20,000 each. The loss for each partner is $45,000 so $25,000 becomes a long term capital loss for them which they can net against future capital gains.

Question 14

In a new partnership Tom contributes $7,000 cash, and Jerry contributes equpiment with $5,000 basis, $10,00 FMV, subject to a $3,000 liability. What is Jerry’s basis in the partnership?

Answer 14

Equipment basis minus the liability, adding half the liability back because he picks it up again as a partner.

$5,000 -(50%)($3,000) = $3,500

Question 15

What is 1245 depreciation recapture?

Answer 15

MACRS or Section 179 depreciation can bring the price of an asset down so low that if resold the price can be MUCH higher than basis. So if asset is sold for more than adjusted basis, then: revenue from sale will be recaptures as ordinary income UP TO AMOUNT OF DEPRECIATION; after that remainder will be a SECTION 1231 GAIN

Question 16

How does Section 1250 depreciation work

Answer 16

If real property sold for greater than adjusted basis or salvage price, gain is reconized. The difference between accelerated depreciation and equivalent straight line depreciation is treated as ordinary gain. Remainder is unrecaptured 1250 gain and taxed as LTCG at 25%

Question 17

What is Section 291?

Answer 17

Refers to C corporations selling real property at subject to an additional 20% reduction of LTCG on Section 1250 depreciation recapture.

Question 18

Explain mechanics of 1250 depreciation recapture.

Building original cost-$600K

Building sale price-$500K

Adjusted basis (accelerated) - $60K

Basis (if straight line used) - $90K

Answer 18

500K (sale price)

- 60K (adjusted basis)

440K (gain)

$600K (original price)

- $60K (adjusted basis)

$540K (accelerated depreciation)

• If Straight line depreciation had been used total depreciation would be $510K
• Acclererated Depr - Straight line depr = additional depr
• 540K - 510K = 30K=additional depr, recaptured as 1250 gain and considered ordinary gain

Balance of gain (440K - 30K = 410K) is Section 1231 gain and taxes as LTCG(at 25%)

Question 19

Washington, Lincoln, and Roosevelt formed President Corporation during the current year. Pursuant to the incorporation agreement, Washington transferred cash of $60,000 for 600 shares of stock, Lincoln transferred property with an adjusted basis of $5,000 and a fair market value of $15,000 for 150 shares of stock, and Roosevelt performed services valued at $25,000 in exchange for 250 shares of stock. Assuming the fair market value of President Corporation’s stock is $100 per share, what is President Corporation’s tax basis for the property received from Lincoln?

Answer 19

The requirement is to determine President Corporation’s tax basis for the property received in the incorporation from Lincoln. Since Washington and Lincoln are the only transferors of property and they in the aggregate own only 750 of the 1000 shares outstanding immediately after the exchange, Sec. 351 does not apply to provide nonrecognition treatment to Lincoln’s transfer of property. As a result, Lincoln is taxed on his realized gain of $10,000, and President Corporation has a cost basis of $15,000, (i.e., FMV) for the transferred property.

Question 20

What is the difference between joint tenancy and tenants in common?

Answer 20

think of tenancy in common as TIC. A tick ca be a problem! The problem with tenancy in common is that their are no survivorship rights like there is with joint tenancy.