Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP Courses > Tax Planning > Flashcards

Tax Planning Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

Regarding IRS tax filing, what is the penalty for gross negligence?

A

There is a 20% penalty for gross negligence that also applies for misstatement of valuation and substantial understatement of income tax.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Which is the best source for obtaining information about the intent of a very recent change in the tax law?

A

Only the Congressional Committee Reports will show the intent of a law change.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Describe the Assignment of Income Doctrine:

A

Income is taxed to the tree that grows the fruit, even though the income is assigned to another prior to receipt.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which one of the following best describes the Sham Transaction Doctrine?

A

IRS will ignore the transaction and no gain or loss will be recognized for tax purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the penalty for failure to file a tax return?

A

5% per month to a maximum of 25%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Which of the following carry the “full force and effect of the law?”

A

Treasury Regulations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Which one of the following is not an exemption from the imputed interest rules?

A

Any sales where all the payments are due within 12 months.

Any sales where all the payments are due within 6 months would be an exemption.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Two years ago, went to town’s recycling center and brought home several books from the “take it or leave it” section. Recently, Sam discovered that one of the hard cover book’s pages was cut out in the center and $7,000 was in its place. He spent $50 advertising in the local newspaper he found money in a book but no one could claim the title of the book or amount. What are the tax ramifications to Sam?

A

Sam must report $7,000 in the current year.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Which one of the following items is not included in gross income?

A

Child support received by custodial parent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Joel had $40,000 of gambling winnings this year and had $22,000 of expenses directly related to those winnings. Assuming that Joel is not a professional gambler, how much will Joel report as gross income from his gambling activities?

A

$40,000

The gross winnings must be included as income and he can only deduct his expenses as a miscellaneous itemized deduction.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

John lent his son $50,000 for the purchase of a new house, with the understanding that in five years, his son would re-pay the loan at face value. For the current tax year, John’s son had net investment income of $1,400. Assume that the Applicable Federal Rate (AFR) for mid-term loans is 3%. Calculate the imputed interest for the first year.

A

$1,400

In the $10,001 - $100,000 range, the lender must impute the lesser of the borrower’s net investment income or the AFR times the loan amount ($50,000 X .03 = $1,500).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Susan is insolvent and at this point, has not sought bankruptcy protection. Her assets total $65,000, while her debt amounts to $185,000. She has just learned that the lender who is owed the $185,000 has forgiven her debt. How much will Susan be taxed on the debt forgiveness?

A

When debt forgiven exceeds assets outside of bankruptcy, only the amount that exceeds the assets is not taxed.

$65,000

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Your client, Jane, wants you to explain the difference between a tax credit and a tax deduction. She just received a $600 tax credit and wants to know what that worth as a deduction if she were to itemize her deductions. Calculate the equivalent deduction for Jane’s credit if Jane’s marginal tax bracket is 24%.

A

$2500

When converting a tax credit to an equivalent deduction, TC/MTB = $600/.24 = $2,500.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Jill and Jay have a 12-year-old son who has earned $5,000 in taxable bond interest this year. They would like to know how much of their son’s interest income will be taxed at their marginal tax rate?

A

$2800

If the kiddie tax applies, any unearned income over $2,200 will be taxed at the parents’ tax rate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Jack and Jill will file as Married Filing Jointly. They have two children, ages 7 and 10.

Jack’s W-2 wages $50,000
Jill’s W-2 wages $65,000
Jack’s sole proprietorship (net) $160,000
Total Taxable Dividends $1,400
Taxable Dividends that are Qualifying $1,300
Jack’s alimony payments to ex-wife $6000
Qualified Business Income Deduction $30,421
Mortgage Interest $20,000
State Income Tax $12,000
Gambling winnings $30,000
Gambling losses $(18,000)

How much is Jack’s self-employment tax?

A

Medicare = $160,000 X .9235 X .029 = $4,285.04.

OASDI = $(142,800 - $50,000) X .124 = $11,507.20.

Add the two amounts: $4,285.04 + $11,507.20 = $15,792.24.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Jack and Jill will file as Married Filing Jointly. They have two children, ages 7 and 10.

Jack’s W-2 wages $50,000
Jill’s W-2 wages $65,000
Jack’s sole proprietorship (net) $160,000
Total Taxable Dividends $1,400
Taxable Dividends that are Qualifying $1,300
Jack’s alimony payments to ex-wife

Divorced in 2018 $6,000

Qualified Business Income Deduction $30,421

Mortgage Interest $20,000
State Income Tax $12,000
Gambling winnings $30,000
Gambling losses $(18,000)

How much is Jack and Jill’s gross income before adjustments to gross income?

A

$50,000 + $65,000 + $160,000 + $1,400 + $30,000

$306,400

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Jack and Jill will file as Married Filing Jointly. They have two children, ages 7 and 10.

Jack’s W-2 wages $50,000
Jill’s W-2 wages $65,000
Jack’s sole proprietorship (net) $160,000
Total Taxable Dividends $1,400
Taxable Dividends that are Qualifying $1,300
Jack’s alimony payments to ex-wife

Divorced in 2018

Qualified Business Income Deduction

$6,000

$30,421

Mortgage Interest $20,000
State Income Tax $12,000
Gambling winnings $30,000
Gambling losses $(18,000)

How much is Jack and Jill’s adjusted gross income (AGI)?

A

$306,400 – $6,000 – ($15,792/2) = $292,504

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Jack and Jill will file as Married Filing Jointly. They have two children, ages 7 and 10.

Jack’s W-2 wages $50,000
Jill’s W-2 wages $65,000
Jack’s sole proprietorship (net) $160,000
Total Taxable Dividends $1,400
Taxable Dividends that are Qualifying $1,300
Jack’s alimony payments to ex-wife

Divorced in 2018

Qualified Business Income Deduction

$6,000

$30,421

Mortgage Interest	$20,000
State Income Tax	$12,000
Gambling winnings	$30,000
Gambling losses	$(18,000)
How much is Jack and Jill's itemized deductions?
A

$20,000 + $10,000 + $18,000 = $48,000. Please note that all taxes are limited to $10,000.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Jack and Jill will file as Married Filing Jointly. They have two children, ages 7 and 10.

Jack’s W-2 wages $50,000
Jill’s W-2 wages $65,000
Jack’s sole proprietorship (net) $160,000
Total Taxable Dividends $1,400
Taxable Dividends that are Qualifying $1,300
Jack’s alimony payments to ex-wife

Divorced in 2018

Qualified Business Income Deduction

$6,000

$30,421

Mortgage Interest	$20,000
State Income Tax	$12,000
Gambling winnings	$30,000
Gambling losses	($18,000)
How much is Jack and Jill's taxable income?
A

Gross Income $306,400

1/2 S/E Tax = $7,896. ($160,000 x 92.35% x 2.9%) = $4,285.04. Medicare ($142,800 - $50,000 x .124 = $11,507.20 is the amount of OASDI. Add together $4,285.04 and $11,507.20 = $15,792. $15,792 is the total SE Tax and 50% is a deduction for AGI ($7,896).

Gross income ($306,400) minus total deductions ($92,317 includes 50% SE tax) = taxable income $214,083

Alimony	($6,000)
AGI	$292,504
Itemized	($48,000) = ($20,000 Mortgage Interest + $10,000 SIT + $18,000 Gambling Losses to Gambling Winnings)
QBI Deduction	($30,421)
Taxable Income	$214,083
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Marcia Washington, a single taxpayer, has the following itemized deductions:

Home mortgage interest (first mortgage) $29,920
Charitable contributions $7,000
Property taxes $9,715
Deductible gambling losses $1,900
Deductible State Income taxes $285
Deductible Margin Interest $3,100
Marcia’s AGI for the current year is $204,350. Under the regular tax method, Marcia is allowed final itemized deductions of $51,920.

What amount of itemized deductions, if any, would be allowed for purposes of the AMT?

A

Only the property tax and state income tax are disallowed under AMT.

$29,920 + $7,000 + $1,900 + $3,100 = $41,920.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Bill and Diana are married and will file as Married Filing Jointly.

Bill’s W-2 wages $180,000
Diana’s W-2 wages $90,000

Total Taxable Dividends	$2,400
Bill's ISO exercise (Bargain element)	$36,000
Mortgage Interest	$22,000
Property Tax	$8,100
State Income Tax	$1,900
Charitable contributions	$2,200
Bill and Diana's AGI	$272,400
Regular Income Tax Liability	$45,210

How much are Bill’s and Diana’s allowable itemized deductions under the AMT method?

A

$22,000 + $2,200 = $24,200.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Bill and Diana are married and will file as Married Filing Jointly.

Bill’s W-2 wages $180,000
Diana’s W-2 wages $90,000

Total Taxable Dividends	$2,400
Bill's ISO exercise (Bargain element)	$36,000
Mortgage Interest	$22,000
Property Tax	$8,100
State Income Tax	$1,900
Charitable contributions	$2,200
Bill and Diana's AGI	$272,400
Regular Income Tax Liability	$45,210

How much is the alternative minimum taxable income?

A

$272,400 (AGI) + 36,000 (ISO) - $24,200 (mortgage interest plus charitable contributions) = $284,200.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Bill and Diana are married and will file as Married Filing Jointly.

Bill’s W-2 wages $180,000
Diana’s W-2 wages $90,000

Total Taxable Dividends	$2,400
Bill's ISO exercise (Bargain element)	$36,000
Mortgage Interest	$22,000
Property Tax	$8,100
State Income Tax	$1,900
Charitable contributions	$2,200
Bill and Diana's AGI	$272,400
Regular Income Tax Liability	$45,210

Calculate their AMT exemption.

A

$114,600 is correct. For the status MFJ, the phase-out of the AMT does not begin until AMT exceeds $1,047,200.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Bill and Diana are married and will file as Married Filing Jointly.

Bill’s W-2 wages $180,000
Diana’s W-2 wages $90,000

Total Taxable Dividends	$2,400
Bill's ISO exercise (Bargain element)	$36,000
Mortgage Interest	$22,000
Property Tax	$8,100
State Income Tax	$1,900
Charitable contributions	$2,200
Bill and Diana's AGI	$272,400
Regular Income Tax Liability	$45,210

Calculate their AMT liability.

A

$284,200 - $114,600 = $169,600 AMT Base.

$169,600 X .26 = $44,096

AMTI less AMT exemption equals AMT base. AMT base times 26% equals AMT liability.

25
Q

Bill and Diana are married and will file as Married Filing Jointly.

Bill’s W-2 wages $180,000
Diana’s W-2 wages $90,000

Total Taxable Dividends	$2,400
Bill's ISO exercise (Bargain element)	$36,000
Mortgage Interest	$22,000
Property Tax	$8,100
State Income Tax	$1,900
Charitable contributions	$2,200
Bill and Diana's AGI	$272,400
Regular Income Tax Liability	$45,210

How much is Bill’s and Diana’s AMT payable?

A

$44,096 - $45,210 = $0

AMT payable is the AMT liability less the regular liability. However, regular tax exceeds AMT so AMT payable is zero.

26
Q

Last month, Robert’s Aunt Sue gave him $65,000 of Microsoft stock that she purchased 19 years ago at a cost of $17,000. Aunt Sue paid gift taxes of $10,000 on the transaction, even after utilizing the $15,000 gift tax annual exclusion. How much is Robert’s basis in the stock and what is his holding period?

A

The Aunt’s basis of $17,000 plus the gift tax adjustment which is appreciation/taxable amount of the gift. The appreciation is ($65,000 - $17,000) = $48,000. The taxable amount of the gift is the FMV less the annual exclusion, if applicable, so $65,000 - $15,000 = $50,000. $48/$50 = 96%. Therefore, 96% of the gift taxes paid by the Aunt can be added to Robert’s basis. 96% of $10,000 = $9,600. Total basis = $9,600 + $17,000 = $26,600.

27
Q

Rex received 1,000 shares of stock from his uncle, Max. Max had purchased the stock seven years ago for $59 per share. The fair market value on the date of Max’s death was $45 per share, and the fair market value six months after the date of death was $43 per share.

If Rex inherited the stock and the administrator of Max’s estate did not elect the alternated valuation date, how much is Rex’s per share basis in the stock?

A

$45 per share, the FMV at the time of his uncle’s death.

28
Q

Rex received 1,000 shares of stock from his uncle, Max. Max had purchased the stock seven years ago for $59 per share. The fair market value on the date of Max’s death was $45 per share, and the fair market value six months after the date of death was $43 per share.

Assume that the administrator of the estate does elect the alternate valuation date. How much is Rex’s per-share basis in the stock?

A

$43 per share 6 months after date of death.

29
Q

Rex received 1,000 shares of stock from his uncle, Max. Max had purchased the stock seven years ago for $59 per share. The fair market value on the date of Max’s death was $45 per share, and the fair market value six months after the date of death was $43 per share.

Assume instead that Rex received the stock as a gift from his Uncle two years ago when the FMV of the stock was $70. Max was able to utilize the annual exclusion of $15,000 but still had to pay $25,000 in gift taxes. How much is Rex’s basis?

A

Appreciation / Taxable amount of the gift X taxes paid / shares = gift tax adjustment per share. Then add to Donor’s purchase basis. ($70 - $59) / ($70 – 15) = 20%. 20% X $25,000 / 1,000 shares = $5 per share adjustment. $59 + $5 = $64.

30
Q

Rex received 1,000 shares of stock from his uncle, Max. Max had purchased the stock seven years ago for $59 per share. The fair market value on the date of Max’s death was $45 per share, and the fair market value six months after the date of death was $43 per share.

Assume instead that Rex received the stock as a gift from his Uncle two years ago when the FMV of the stock was $55. Max was able to utilize the annual exclusion of $15,000 but still had to pay $21,000 in gift taxes. If Rex sold the stock this year for $60, how much was his basis?

A

Rex takes over the Uncle’s purchase price as basis. Note that gift taxes, even though they were paid, do not apply since the FMV at the time of the gift was less than the donor’s basis.

$59

31
Q

Rex received 1,000 shares of stock from his uncle, Max. Max had purchased the stock seven years ago for $59 per share. The fair market value on the date of Max’s death was $45 per share, and the fair market value six months after the date of death was $43 per share.

What would be the tax ramifications if Uncle Max bought the stock several years ago for $59, gave it to Rex 8 months ago when the FMV was $55, and Rex sold the stock today for $57?

A

Rex will have no gain, no loss, and no taxes due on the transaction.

If Rex sells the stock for more than the FMV at the time of transfer but less than the donor’s basis, no gains or losses will be recognized.

32
Q

You had purchased equipment for your business that was being depreciated over a 7-year life. The original cost of the equipment was $42,000 and $18,000 had been taken as cost recovery. You changed your manufacturing process and no longer required the equipment. Today, you managed to sell the equipment for $30.000. How much must be recaptured under Section 1245 as ordinary income?

A

$6,000

The difference between the selling price and the adjusted basis must be recaptured.

33
Q

Don owned and lived in his house 10 years before he met and married Stephanie. She had lived in an apartment but after the marriage she moved into Don’s house and continued to consult as a rocket scientist, working from a home office. Six months later, she was offered a job by NASA and they had to immediately move to Florida. The property deed was never changed and Don sold the house realizing a gain on $550,000. They will be filing jointly. How much of the gain will be excluded under section 121 of the IRC?`

A

They are married filing jointly so they can prorate her $250,000 ($62,500) and add it to his $250,000 for a total exclusion of $312,500.

34
Q

On January 20th 2021, Barbara was paid $400,000 from her insurance company for an office building that was destroyed by a tornado on June 28, 2020. Barbara’s basis in the destroyed property was $230,000. How much must she reinvest at a minimum to avoid gain recognition and how long does she have to replace the property?

A

Reinvest Latest Replacement Date
$400,000 December 31, 2023

In order to avoid recognition of gain, you must reinvest the entire proceeds from the insurance. The mandatory latest date to replace the property is two full years after the end of the year in which you realize the gain (get insurance money).

35
Q

Which of the following are true statements describing Section 1244 stock?

A

A.
Code allows special treatment for losses; and has nothing to do with special treatment for gains

CorrectB.
Pertains to only the first $1 million of stock sold

CorrectD.
Single taxpayer may deduct up to $50,000 as an ordinary loss

CorrectE.
Taxpayers filing as married filing jointly may deduct up to $100,000 as an ordinary loss

CorrectF.
Once the stock is sold, donated, or gifted, it losses its Section 1244 status

36
Q

Kent bought a tract of land for $50,000 as an investment. A couple of years later, there is a polluted lake discovered on the adjacent lot. The EPA got involved and the environmental cleanup activity was declared as being eligible for superfund spending. Although this is good news, it is anticipated that the cleanup will take several years. As such, the value of Kent’s land plummeted to $30,000. If Kent sells the land to his son Jack, under Section 267 of the IRC for related parties, which of the following statements is incorrect?

A

If Jack sells the property for $35,000, he will have a $5,000 gain and he will not be able to use any of his father’s loss to offset the gain.

37
Q

John, a single taxpayer, was a very successful commodities dealer who works and lives in Chicago. Last year, he purchased a penthouse that overlooked Lake Michigan for 1.8 million dollars. John recently had a nervous breakdown and nearly entered a catatonic state. After months of intensive therapy, it was determined that John’s job was causing him so much stress it led to his current mental state. His doctor recommended that he work in an environment with dramatically less stress. John subsequently, quit the commodities business and accepted a job at McDonalds as a food preparer. He is much happier now but has found it difficult to keep up with his mortgage payments and condominium fees for the penthouse. John sold the property and cleared 2.2 million dollars, net of transaction costs, and moved into a small studio apartment on the South end. He lived in the penthouse for 18 months and he has asked you to determine how much of the $400,000 gain is taxable. You told him

A

$212,500 will be taxable and $187,500 excluded.

Changing jobs and not being able to pay your expenses is a valid reason to earn a prorated exclusion for the sale of a personal residence. (18/24) X $250,000 = $187,500 exclusion.

38
Q

On January 31, 2021, Dave sold an oriental carpet that he had inherited from his Grandfather. The FMV at the time of the inheritance was $15,000. The terms of the sale were a price of $60,000, with a 20% down payment and the balance to be paid monthly over the next four years. The loan bears an interest rate of 8%. The first payment is scheduled to begin at the end of February, and will continue to be due on the last day of all subsequent months. How much must Dave report as ordinary income, and how much must he report as capital gain income for 2021?

A

Taxation of installment sales can be broken down into 5 steps:

Calculate the gross profit percentage (GPP)
Calculate the down payment
Calculate the loan payments, then using the amortization function, calculate the principal and interest (P&I) received the first year
The interest (from P&I) is taxed as ordinary income
The sum of the down payment and the principal (from P&I) times the GPP is the reported capital gain
Putting in this question’s specifics:

Calculate the GPP ($45,000/$60,000) = 75% = .75

Calculate the down payment ($60,000 X .20) = $12,000

Calculate the loan payments and amortize 11 payments (received in 2019) to determine principal and interest:

48 n 48000 CHS PV 8 g I PMT
Calculator returns $1,171.82 (monthly payment)

11 f AMORT
Calculator returns $3,201.34 (Interest received for 11 months)

X > < Y
Calculator returns $9,688.68 (principal received for 11 months)

The interest received of $3,201 is taxed as ordinary income.

The sum of the down payment and the principal received times the GPP ($12,000+$9,689) x .75 = $16,267 is the capital gain income

39
Q

Step-Up Basis

A

The basis of property received from a decendant is generally the FMV at the date of death or alternative valuation Date

Can be a step up or step down

40
Q

When thinking of Form 1040, what is the basic formula for determining net income tax payable or returned?

A 
Income from any source derived 
     minus (-) exclusions
     = Gross Income
     minus deductions for AMT
     = Adjusted Gross Income

Adjusted Gross Income
minus 1) greater of itemized deductions or standard deductions AND 2) qualified business income deductions
= Taxable Income

Taxable Income X Tax Rates = Gross tax

Gross Tax - Credits & Prepayments
= Net Tax Payable OR Refund

41
Q

What is the Qualified Business Income Deductions?

A

The Tax Cuts and Jobs Act has created a new deduction for business owners of certain pass-through businesses. The new law allows up to a 20% deduction from AGI of qualified business income (QBI). Taxpayers may claim this deduction whether they claim itemized deductions or the standard deduction.

42
Q

Describe Section 179

A

In lieu of capitalizing the cost of new or used tangible personal business property, taxpayers may elect to expense up to $1,050,000 of the acquisition cost, as an ordinary deduction in the year of acquisition. To qualify for the deduction, the property must actually be placed into service during the year. The immediate expensing election is not applicable to property held for the production of income, such as real estate. The election is made on an annual basis, and the taxpayer must select the assets to which the deduction applies.

43
Q

What is depreciation?

A

Depreciation is the systematic allocation of the cost of an asset over its estimated economic life. Using depreciation, taxpayers can deduct a reasonable allowance for the exhaustion, wear and tear, and obsolescence of property. It relates to deductions for tangible property used in business.

44
Q

What is the taxability of losses under 1244 Stock

A

Taxpayers generally recognize a capital gain or loss on the sale of stock or securities. The tax law provided an exception for losses from the worthlessness of small business corporation (Section 1244) stock. Taxpayers may deduct these losses as ordinary losses up to a maximum of $50,000 per tax year ($100,000 for married taxpayer filing a joint return). Any remaining loss for the year is capital loss.

45
Q

How does the tax treatment for corporate taxpayers differ from non-corporate taxpayers

A

However, a major difference is that the tax rates of 0%, 15%, 20%, 25% and 28% on net capital gain for non-corporate taxpayers do not apply to corporations. As of 2018, all corporate taxpayers pay a flat rate of 21% for both ordinary income as well as capital gain income.

Additionally, corporate taxpayers may not deduct $3,000 of capital losses against ordinary income.

Lastly, corporate taxpayers who receive dividends only have to pay taxes on 30% of dividend income received.

46
Q

Determine the realized gain

A

The amount of gain on the sale of the property is called realized gain. Gain realized is the excess of the amount realized over the property’s adjusted basis. The amount realized on the sale of the property is equal to the selling price less selling expenses. Selling expenses include commissions, advertising, deed preparation costs, and legal expenses incurred in connection with the sale.

47
Q

What is self-employment tax?

A

Self employment tax, sometimes known as payroll tax, is 15.3%; derived by 2.9% for medicare and 12.4% for social security.

The first 148,200 is subject to self employment taxes

48
Q

Regarding like-kind property, what is the exchange of securities considered?

A

The like-kind exchange rules do not apply to stocks, bonds or notes. However, Section 1036 provides that no gain or loss is recognized on the exchange of common stock for common stock, or preferred stock for preferred stock in the same corporation.

49
Q

What is like-kind property defined?

A

In a like-kind exchange, both the property transferred and the property received must be held either for productive use in the trade or business or for investment.

Definition of a like-kind exchange depends upon certain elements that are outlined in Section 1031 of IRS which are:

Character of the property
Location of the property
Non-Like-Kind property exchanges
Exchanges of securities

50
Q

What are the timing considerations of exchanges of like-kind property?

A

In a non-simultaneous exchange or deferred exchange, the exchanger has 45 days from the date that the relinquished property closes to identify the replacement property or properties and 180 days from the closing date of the relinquished property to close on the replacement property.

51
Q

What is the receipt of boot and how is it treated for tax purposes?

A

Taxpayers who want to exchange property do not always own property of equal value. To complete the exchange, non-like-kind property or money may be given or received. Cash and non-like-kind property constitute boot.

Gain is recognized to the extent of the boot received. However, the amount of recognized gain is limited to the amount of the taxpayer’s realized gain. In effect, the realized gain serves as a ceiling for the amount of the recognized gain.

52
Q

How are property transfers with liabilities treated?

A

If a liability is assumed (or the property is taken subject to a liability), the amount of the liability is considered as money received by the taxpayer on the exchange. One who assumes the debt or takes the property subject to a liability is treated as having paid cash, while the party that is relieved of the debt is treated as having received cash.

53
Q

What is the basis of property received in like-kind?

A

Basis of property in a non-taxable exchange =

Basis of property exchanged -
Boot Received +
Gain Recognized -
Loss Recognized

54
Q

What is the holding period for property received in like-kind?

A

The holding period of like-kind property received in a non-taxable exchange includes the holding period of the property exchanged, if the like-kind property surrendered is a capital asset or an asset that is Section 1231 property. In essence, the holding period of the property exchanged carries over to the holding period of the like-kind property received.

55
Q

What are the filing requirements for a domestic taxable trust?

A

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a taxable domestic trust that has:

any taxable income for the tax year
gross income of $600 or more (regardless of taxable income), or
a beneficiary who is a non-resident alien

56
Q

What are the tax filing deadlines for estates and trusts?

A

For calendar year estates and trusts, Form 1041 and Schedule K-1 must be filed on or before April 15, 20XX for the prior year. For fiscal year estates and trusts, Form 1041 must be filed by the 15th day of the 4th month following the close of that tax year. If the due date falls on a Saturday, Sunday, or legal holiday, filing must occur on the next business day.

57
Q

What are the fifteen items explicitly defined under gross income by the IRC?

A

Section 61(a) of the Internal Revenue Code states that gross income includes, but is not limited to, fifteen specifically listed types of income. The following are some of the items included in gross income:

Compensation
Business Income
Gains from Property Dealings
Interest
Rents and Royalties
Dividends
Alimony and Separate Maintenance Payments
Pensions and Annuities
Income from Life Insurance and Endowment Contracts
Income from Discharge of Indebtedness
Income Passes through to the Taxpayer
58
Q

How many non-recognition rules are there for gains dealing from property?

A

There are 30 non-recognition rules available to taxpayers.

59
Q

Major Statutory Exclusions

A

Gifts and inheritances
Life insurance proceeds
Public assistance programs
Qualified adoption expenses
Payments for personal physical sickness and injury
Discharge of indebtedness during bankruptcy or insolvency
Gain on sale of personal residence
Partial exclusions for Social Security benefits

CFP Courses (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions