Tax - Property Transactions

Question 1

What is the basic calculation for basis in property?

Answer 1

Cost of property + Purchase expenses + Debt assumed + Back taxes and interest paid = Basis. Note: taxes and interest related to time when a taxpayer did not own the property are not deductible - they are added to basis.

Question 2

What is the recipient or donee’s basis on gifted property?

Answer 2

Sold at a gain: use donor’s basis Sold at a loss: use lesser of donor’s basis or FMV at time of distribution Sold in between donor’s basis and FMV: No gain or loss

Question 3

What is the basis and holding period of inherited property?

Answer 3

FMV at date of death or alternate valuation date (6 months later) If alternate date is elected by property is sold before 6 month window; use FMV at date of death. Property inherited is LTCG property regardless of how long it is held by the recipient.

Question 4

What is the holding period on a stock dividend?

Answer 4

Holding period of new stock received from a dividend takes on the holding period of the original stock

Question 5

What property is eligible for like-kind exchange treatment?

Answer 5

Real for real or personal for personal business property only US property only

Question 6

What is BOOT in a like-kind exchange?

Answer 6

Cash received + unlike property received + liability passed to other party

Question 7

In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?

Answer 7

DO NOT subtract the boot paid amount from the cash received Ignore the boot paid amount from the mortgage completely

Question 8

What is an involuntary conversion? When does it not result in a gain?

Answer 8

Occurs when you receive money for a property involuntarily converted There is no gain if you reinvest the proceeds completely If proceeds not completely reinvested; gain is LESSER of realized gain or amount not reinvested.

Question 9

What are the requirements for exclusion of gain on a primary residence? How are losses treated?

Answer 9

Must live there 2 out of 5 years Loss on sale of home is NOT deductible

Question 10

What is a wash sale?

Answer 10

30 Day rule applies Disallowed loss adds to basis of new stock New stock takes on date of acquisition of old stock

Question 11

Who is considered a related party in a property transaction? How does it affect the transaction?

Answer 11

Ancestors; siblings; spouse; descendants; corporation or partnership where you’re a 50% shareholder Seller cannot take a loss on sale to a related party; but gain is always recognized. Related party gets to use the disallowed loss when they sell. Related party’s holding period begins when they acquire the property. In-laws are NOT related parties.

Question 12

How are capital losses taken in a corporation?

Answer 12

capital losses only offset capital gains Carryback 3 years - if you elect NOT to carryback; you lost the option in the future Carry forward 5 years - only as STCL

Question 13

What assets are NOT capital assets?

Answer 13

Inventory; Business interest; Accounts Receivable; Covenant not to compete Goodwill IS a capital asset

Question 14

What are the steps in applying a capital gain or loss?

Answer 14

Net all STCG and STCL Net all LTCG and LTCL Add together Deduct $3;000

Question 15

How much ordinary income can be offset by an INDIVIDUAL’s capital losses?

Answer 15

$3;000 per year. Unused is carried forward and taken $3;000 each year. No carryback is allowed.

Question 16

Which property is governed by section 1231?

Answer 16

Real or Personal Business Property held more than a year Inventory is never 1231 Property

Question 17

How are section 1231 gains and losses handled?

Answer 17

Casualty Losses on 1231 Property - Net the losses * Net Loss = Ordinary Loss * Net Gain = Combine with other 1231 Gains 1231 Net Loss - If 1231 Losses exceed gains; treat as Ordinary Loss 1231 Net Gain - If 1231 Gains exceed losses; treat at LTCG 1231 Gain = LTCG 1231 Loss = Ordinary Loss

Question 18

How is section 1245 depreciation recapture handled; and when does it apply?

Answer 18

To the extent of depreciation; treat as ordinary gain Remainder is 1231 gain; which is LTCG - There are no 1245 Losses 1231 Gain = LTCG 1245 Gain = Ordinary Casualty Gain = LTCG 1231 Loss = Ordinary 1245 Loss = N/A Casualty Loss = Ordinary

Question 19

What property qualifies for section 1250 treatment; and how are gains/losses handled?

Answer 19

1250 property is Real Estate Use 1250 for Gain only. For losses; use 1231 Individuals: Post-1986 property with a gain is 1231 LTCG If Straight Line depreciation is used; don’t use 1250 - Entire gain is 1231 Corps: Section 291 requires 20% of depreciation classified as ordinary gain Remainder is 1231 LTCG

Question 20

When are 1231; 1245 and 1250 gains or losses always ordinary?

Answer 20

When the asset is held less than one year.