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CPA: Regulation > Taxation of Property > Flashcards

Taxation of Property Flashcards

1
Q

5 part analysis of Like-Kind Exchanges

A 
1- Amount Realized
2- Basis of Old
3- Realized Gain
4- Recognized Gain
5- Basis of New Asset
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2
Q

What is the taxable gain in a like-kind exchange situation?

A

The lower of:

boot received OR

an accounting-type gain on the exchange

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3
Q

If the taxpayer gets rid of a mortgage and does not take back a mortgage on the new property, this results in ____?

A

This results in additional boot - DEBT RELIEF

Taxable gain.

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4
Q

TCJA eliminates all kinds of exchanges of personal property. What is personal property considered?

A

Non-real estate business property.

Can no longer exchange personal property for personal property.

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5
Q

TCJA modified Section 1031 to DISALLOW what?

A

DISALLOW the exchange of personal property for personal property.

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6
Q

Most REAL ESTATE qualifies for a “like-kind exchange” (no gain unless boot received) UNLESS WHAT?

A

1) Subdivided land of a builder ( = inventory)
2) Real estate located in different countries does no qualify as a tax free exchange
3) Primary residence cannot be traded tax free in a like-kind exchange

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7
Q

Are estimates of useful life allowed for tax purposes?

A

NO, all assets fall into predetermined classes.

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8
Q

TAX DEPRECIATION:

What is considered Real Property?

A

Land and anything permanently attached to the land (like building or fixtures)

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9
Q

Do you depreciate LAND for tax purposes?

A

NO

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10
Q

How to depreciate Residential Property?

A

27.5 years straight line

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11
Q

How to depreciate Non-residential / Commercial Property?

A

39 years straight-line

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12
Q

Strange real-estate depreciation rule

applies to Residential and Non-Residential

A

Straight-line method based on the number of months the property was in service for YEAR 1.

One-half month is taken in the month the property was placed in service.

One-half month is also taken in the year the property is disposed of.

Purchased January 1, act like purchased on January 15th. Depreciate in that year for 11.5 months.

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13
Q

Personal Property MACRS Depreciation

A
  • Ignore salvage value
  • 5-7 year life
  • 200% double declining balance
  • half-year in the first year
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14
Q

4 categories, Personal Property, 5 year life

A
  • Autos
  • Light trucks
  • Computers
  • Farming Equipment
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15
Q

2 categories, Personal Property, 7 year life

A
  • Office Equipment

- Machinery/Equipment

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16
Q

“Qualified Improvement Property” is depreciated over how many years? What method?

A

15 years
Straight-line w/
Half-year convention

(major interior renovation, restaurants, retail, COMMERICIAL)

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17
Q

When a taxpayer purchases ___% or more of machinery/equipment in the last quarter (Oct/Nov/Dec) of the year, they must use ____-_____ convention as their depreciation method. What is this method?

A
  • 40%
  • mid-quarter convention
  • Place in service in the middle of the quarter purchased
  • 4th quarter = 12.5% of double-declining balance (2/5)
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18
Q

Mid-quarter convention rates by quarter:

A

1 - 87.5%
2- 62.5%
3 - 37.5
4 - 12.5%

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19
Q

Section 179 Depreciation rule:

A

The first amount of expended each year for machinery and equipment can be written off in the 1st year

20
Q

Section 179 Deduction- 2 rules for use:

A
  • Business must be profitable

- New asset must be purchased from an unrelated party/arms-length transaction

21
Q

Section 179 limits:

A
  • First $1,050,000 expensed immediately

- Once over $2,620,000 allowable amount lost dollar for dollar

22
Q

Land - how to depreciate?

A

TRICK QUESTION

Land is NOT depreciated

23
Q

Is “Qualified Improvement Property” eligible for the Section 179 deduction?

A

YES, because it is considered Personal Property

24
Q

Can Section 179 create a loss for a taxpayer?

A

NO, limited to taxable income.

25
Q

What is BONUS DEPRECIATION?

A

Can be used after 179 exhausted.

For 2021 & 2022 - 100% of leftover after 179.

26
Q

What is the annual dollar limit and rules for Bonus Depreciation?

A
  • No annual dollar limit
  • Business does not have to profitable
  • Can create a loss
27
Q

Does used property qualify for Section 179? Bonus depreciation?

A

Yes and yes

28
Q

How to elect Section 179 vs. Bonus?

A

Section 179 requires election

Bonus depreciation applies unless you elect NOT to use it

29
Q

What are examples of intangible assets that are amortized?

A

Customer lists
Trade names / Trademarks
-Goodwill

All amortized over 180 months, begins in month of purchase.

30
Q

Section 1231 assets must be held for longer than ____ to qualify

A

1 year

31
Q

Sale of Section 1231 business assets?

Type if net gain?

Type if net loss?

A

Net gain = capital gain

Net loss = ordinary loss

32
Q

Business casualty gains & losses treatment

A

Net those gains and losses first

If a gain, treat as Section 1231 gain and can be combined with other 1231 gains.

If a loss, take ordinary loss

Then head to 1231 assets and net

33
Q

Lookback Rule

A

If Section 1231 Gains exceed Losses:

Treated as long-term capital gain but subject to a “lookback limit” for losses during the previous 5 years

If ordinary losses claimed in past 5 years, recapture as ordinary income.

34
Q

Depreciation Recapture for Machinery / Equipment / Furniture that is SOLD AT A GAIN. How is it taxed?

A

The amount of depreciation taken = ordinary income

Any gain in excess of depreciation = Section 1231 gain

35
Q

Real Estate Recapture - Section 1250

If real estate is sold at a gain, the depreciation recaptured as _______ _______ would be the depreciation taken in excess of ____ ____.

A

If real estate is sold at a gain, the depreciation recaptured as ORDINARY INCOME would be the depreciation taken in excess of STRAIGHT LINE.

36
Q

Real Estate Recapture - Section 1250

If there is not amount of depreciation in excess of straight-line depreciation, how is the gain taxed?

A

Not ordinary, maximum rate of 25%.

Any gain not taxed at 25% is taxed as a 1231 gain.

37
Q

Do corporations get the 25% income tax rate on depreciation recapture?

A

NO

38
Q

How is a Section 1231 Asset sold before one year gain treated?

A

As ordinary income

39
Q

Does the Installment Method apply to both gains and losses?

A

No, only to GAINS.

If the property sells at a loss, all loss is recognized in the year of sale.

40
Q

REAL ESTATE CLOSING STATEMENT

What is a lender’s title policy?

A

Lender’s Title Policy (protect mortgage company vs. claims that come forward before the buyer purchased)

41
Q

REAL ESTATE CLOSING STATEMENT

What is a Homeowner’s Title Policy?

A

-Homeowner’s Title Policy (protects buyer vs claims that come forward before the buyer purchased)

42
Q

Which is considered a capital asset?

  1. Stocks and bonds
  2. Personal use recreation equipment
A

Both 1 and 2

43
Q

For an individual taxpayer, what kind of property is a personal use computer considered?

A

A capital asset

Capital assets also include the taxpayer’s personal use assets such as skis, jet ski, computer, golf clubs, toothbrush.

44
Q

When property is exchanged and each party assumes the other’s mortgage, what is considered the boot?

A

Any debt relief.

So if old mortgage was $150,000, and new mortgage is $70,000, there is $80,000 of debt/relief or boot.

Compare boot to realized gain, recognize the lower of the two.

45
Q

Stockholder needs how much ownership to be considered a related party?

A

GREATER than 50% ownership

46
Q

How much do you people pay on capital gains if they are in the 10% tax bracket?

12% tax bracket?

15% tax bracket?

A

10% - 0

12% - 0

15% - 15%

47
Q

Like-kind exchanges fall under what section of the Tax Code?

A

Section 1031

CPA: Regulation (24 decks)

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