TAX- Sale and Disposition of Assets

Question 1

Do most of the principles between individuals and corporations?

Answer 1

Yes, they are generally the same.

Question 2

What are the classification of assets?

Answer 2

1) Ordinary
2) Capital
3) Sec 1231

Question 3

Define ordinary assets and examples:

Answer 3

Ordinary assets are:

• A/R , note receivable
• Inventory
• Used in a trade or business owned for a year or less

Question 4

What are 1231 assets?

Answer 4

Asset used in a trade or business owned for more than one year

Question 5

What are capital assets?

Answer 5

Defined in the negative (i.e. anything that isn’t a 1231 or ordinary)

• Assets used in a personal activity, investments, goodwill, and patents

Question 6

Example: Platt owns land that is operated as a parking lot. A shed was erected on the lot for the related transactions with customers.

Answer 6

Because they are related to a business, it is a Section 1231 asset

Question 7

Anytime there is a sale or disposition of an asset, there needs to be a recognized gain or loss?

Answer 7

True

Question 8

What is the general formula for a realized gain or loss:

Answer 8

Amount realized
- Adjusted basis
= Realized gain/loss

Question 9

What goes into the amount realized?

Answer 9

Cash received, FMV of property received, Liabilities assumed by the buyer, Less selling expenses

Question 10

Define adjusted basis:

Answer 10

Cost of the asset minus depreciation PLUS capital improvements

Question 11

Define the cost of the asset to determine basis:

Answer 11

Cost of the asset to get it placed into service (transportation, installation, testing, taxes)

Question 12

What is a recognized gain or loss?

Answer 12

the gain or loss that will be reported

Question 13

If you receive a gift or inheritances, how do you determine basis?

Answer 13

GIFT:

• Gain basis= Adjusted basis of the donor
• Loss basis= Lower of 1) FMV at date of gift 2) adjusted basis of the donor
• Depreciable basis= Gain basis
• Basis is increased for the basis of any gift tax paid by the donor due to appreciation

Question 14

Example: Farr made a gift of stock to her child, Pat. At the date of gift, Farr’s stock basis was $10,000 and the FMV was $15,000. No gift taxes were paid.

What is Pat’s basis in the stock for computing a gain, loss, and depreciable?

Answer 14

1) Gain= 10,000

2) Loss Basis:
- Lower of: 10,000 or 15,000 so $10,000

3) Depreciable basis= $10,000

Question 15

In the situation that the sell price is between the gain basis and the loss basis, what amount of gain or loss should be recognized?

Answer 15

ZERO

Question 16

For an inheritance, what is the basis for the beneficiary and what is the exemption?

Answer 16

it will always be the FMV at the date of death

Alternative valuation date (AVD)- FMV six months after the date of death.

Question 17

Holding period of the previous owner impact the new owner for gift and inheritance?

Answer 17

GIFT- if it is sold at a gain, the holding period carries over
GIFT- if it is sold at a loss, the holding period begins after the date of the gift

Inheritances- Holding period is always long-term