Topic 5 Property Transactions Flashcards
Investment held for appreciation purposes is known as _______ ______.
Capital Assets
________ assets are any asset other than: asset used in trade or business; accounts or notes receivable acquired in business from sale or services or property; inventory
Capital
The sale of capital assets generates _______ gain or loss
capital
The amount realized from the sale of a capital asset is the proceeds (less/plus) broker’s fees and selling costs.
less
The _____ of a capital asset includes costs of acquisition and other costs to improve the asset
basis
Stocks are sold by the ____ method, unless basis is tracked by specific shares, then can use ________ ______________ method
FIFO; specific identification
When a taxpayer sells a capital asset for more than its tax basis it is a capital (gain/loss)
gain
A gain on a capital asset held for 1 year or less is a _____-____ capital gain
short-term
Short-term capital gains are taxed at ________ rates
ordinary
Capital gains are ______ and ___ capital gain is taxed at the ____________ rate
netted; net; preferential
Preferential rates of __/___/___ depend on the taxpayers ______
0%/15%/20%; income
Depreciation recapture on real property is section ____ recapture and taxed at a max rate of ___%
1250; 25%
Long-term capital gains from collectibles held for more than _ ____ and qualified small business stock held for more than _ _____ are taxed at a max rate of __%
1 year; 5 years; 28%
When a taxpayers sells a capital asset for less than its tax basis it is a capital (gain/loss)
loss
Net capital losses are limited to a deduction of $_____ against ________ income
$3,000; ordinary
Capital losses not deducted carries over ____________
indefinitely
The first step in netting capital gains and losses is by netting all _____-____ items including any ____ ______ .
short-term; carry forward
After netting short-term capital asset items the taxpayer need to separate ____-____ capital items into three ____ ______ and sum gains and losses within each group
long-term; rate groups
What are the three rate groups?
1) 0/15/20;
2) 25% §1250
3) 28% collectibles
A net short-term loss will be netted with long-term (gain/loss) in the ________ rate group first
gain; highest
When you have losses for short and long term you need to _______ the character of the losses as they are carried forward.
maintain
Placing losses into a year when you don’t have sufficient gains to offset it, creating a carry forward is known as what doctrine?
Constructive Receipt doctrine
Recognizing income when there are no restrictions on the use of the income is known as what?
Claim of Right
When a loss is disallowed because the taxpayer purchases the same or “substantially identical” stock within a 61-day period centered on date of sale (30 days before and after day of sale) is called what?
“Wash Sale” Rules
What are some tax planning ideas for capital assets?
- Hold capital assets for more than 1 year to get preferential rates and defer tax on growth of asset until sold
- loss harvesting - offsetting short-term capital gains or ordinary income
- balance with non-tax factors: what is happening in the stock market; what is happening with real estate prices; etc
The sale of personal residence can exclude capital gain up to $____ MFJ/$____ others if:
- _________ test - owned for 2 or more years during the 5 year period ending on date of sale
- ___ test - used the property as a principal residence for a total of 2 or more years during the 5 years period ending on date of sale
$500K/$250K; ownership; use
On the sale of personal residence, MFJ taxpayers can exclude the full $500K if (either/both) meets ownership test and (either/both) meet use test.
either; both
Losses on the sale of a personal use assets (are/are not) deductible.
are not
Gains on the sale of a personal use assets (are/are not) taxable.
are
Personal Residence Special Rules state that a widow(er) is entitled to the full $500K exclusion if they sell the home within _ years of the date of death of their spouse. The also cannot _______.
2; remarry
Personal Residence Special Rules of “nonqualified use” limitation must recognize gain using ration of what?
Period of nonqualified use/ time taxpayer owned home
Calculates amount of gain that must be recognized
Personal Residence Special Rules of unforeseen circumstances reduce max exclusion using ration of what?
full exclusion x (months of qualified ownership / 24 month)
Calculates a reduction of the amount of exclusion
When does a personal residence get depreciated?
rental or use as a home office
Gain on sale of home attributable to ____________ deductions are not eligible under home sale exclusion. That is going to be unrecaptured _____ gain subject to a max of __%
depreciation; §1250; 25%
When property is disposed what is the amount realized? adjusted basis? gain/(loss) realized?
amount realized = cash received + FMV of other property received + buyers assumption of sellers liabilities - sellers expenses
adjusted basis = initial basis - cost recovery deductions (depreciation)
gain/(loss) realized = amount realized - adjusted basis
realized gains (increase/decrease) gross income whereas realized losses (increase/decrease) gross income
increase; decrease
most realized gains (losses) are recognized __________ but some may be ___________ excluded from taxable income
immediately; permanently
When you receive an asset as a gift, and the FMV is greater than the donors basis, you have a carryover basis in that asset of the donors basis. What does that mean?
your basis = donors basis
When you receive an asset as a give, and the FMV is less than the donors basis, you have a split basis which is a carryover basis unless sold at loss, then use FMV at date of gift. What does that mean?
your basis = donors basis
UNLESS sold at a loss
your basis = FMV at date of gift
When you inherit property what is your basis?
FMV of date of death
OR
FMV of alternate valuation date IF elected by the estate
When property is converted from personal use to business use what is the basis?
appreciated asset then basis = same basis as taxpayer’s before conversion
declined in value the split basis rules apply where basis = FMV at date of conversion if sold at a loss
How long is the holding period for Short-Term capital assets?
1 year or less
How long is the holding period for Long-Term capital assets?
more than one year
When you have short-term assets that are used in a trade or business, they are ________ gains (losses) when you sell them.
ordinary
When you have long-term assets that are used in a trade or business, they are ________ gains (losses) when you sell them.
§1231
When you have short-term investments or personal-use assets its _____-_____ _______ gains (losses) when you sell them.
short-term capital
When you have long-term investments or personal-use assets its _____-_____ _______ gains (losses) when you sell them.
long-term capital
When you have short-term inventory and accounts receivable its _______ gains (losses) when you sell them.
ordinary
When you have short-term inventory and accounts receivable its _______ gains (losses) when you sell them.
ordinary
Depreciable assets and land used in trade or business held for more than one year are what kind of assets?
§1231 Assets
When you have a net §1231 gain its considered a ____-____ ______ gain and gets the _______ tax rate
long-term capital; special
When you have a net §1231 loss it is taxed as an ________ loss
ordinary
Some §1231 gains on depreciable assets may be recharacterized as depreciation recapture and taxed as ________ income.
ordinary
What do §1231 assets consist of?
Pure §1231 = land
§1245 = personal property & intangibles
§1250 = depreciable real property
What assets are subject to depreciation recapture?
§1245 and §1250 assets
For §1245 and §1250 assets how much is the depreciation recapture?
the lesser of the gain recognized OR total accumulated depreciation
If the gain is more than the depreciation recapture how is the remaining gain classified?
§1231 gain
If §1245 and §1250 assets are sold at a loss, what is the depreciation recapture?
no recapture when sold at a loss
C corporations do not recognize _____ recapture, instead, they recognize recapture under ____
§1250; §291
§291 depreciation recapture is taxed as ________ income - __%of the lesser of __________ gain or ___________ depreciation
ordinary; 20%; recognized; accumulated
i.e. acc dep x 20% = §291 recapture
For individuals, depreciable real property is _____ property and generally (is/is not) subject to recapture.
§1250; is not
Individuals recognize _____ recapture if the asset was a _____ property. This is called “__________ _____ gain”
§1245; §1245; unrecaptured §1250
Individuals with unrecaptured §1250 gain is _____ gain that is taxed at a max rate of __% IF treated as a ____-____ _______ ____
§1231; 25%; long-term capital gain
All gain from selling property to a related person buyer is ________ income
ordinary
When selling to a related party the seller is required to recognize ________ income for ____________ deduction the buyer will receive in the future.
ordinary; depreciation
For an individual related includes…
- controlled corporation (they own 50% or more)
- individuals
- partnership
- trust in which they or their spouse is beneficiary
- controlled groups, majority partners, s corps or s corp and c corp controlled by same person.
The §1231 ________ Rule affects character but not amount of gain taxed
Lookback
Per the ________ rule, gains and losses from individual asset disposition are ________ netted together
lookback; annually
The lookback rule is designed to require the taxpayer to ______________ current-year gains as ________ to the extent they deducted ordinary net ____ losses in prior
recharacterize; ordinary; §1231
What is the lookback period for §1231?
5 years
Like-Kind Exchange is a special circumstance where we have ___-___________ of gains
non-recognition
Criteria for ____-____ ________:
- ____ property exchanged “solely for ____-____” property
- Both the property given up and received are either “____ __ _____ __ ________” or are “____ ___ __________”
- ____ restrictions are met: identify replacement property within __ days of giving up property; “____-____” property received within ___ days of when taxpayer transfers property in exchange
Like-Kind Exchange; Real; like-kind; used in a trade or business; held for investment; Time; 45; like-kind; 180
Any non like-kind property received is referred to as ____
boot
Boot is treated as ________ in a sale
received
Boot usually creates a recognized ____
gain
Gain from boot is lesser of ____ _______ or ____ ________
gain realized or boot received
Using the simplified method how is the basis of like-kind property calculated?
FMV of LK property received
- deferred gain OR
+ deferred loss
= basis of LK property received
Using the method un §1031(d) how is the basis of like-kind property calculated?
adjusted basis of LK property surrendered \+ adjusted basis of boot given \+ gain recognized - FMV of boot received - loss recognized = basis of LK property received
Like-kind exchange is for ____ property only - no matter how the question words it!!!!
real
Involuntary Conversions is a special circumstance where we have ___-___________ of gains
non-recognition
Appreciated property involuntarily converted in an accident or natural disaster is called ___________ __________.
involuntary conversion
With involuntary conversions gains are ________.
deferred
With involuntary conversions, the basis of property converted is _______ ____ to the new property.
carried over
When a taxpayer receives money to purchase replacement property (ie insurance proceeds) it is what type of conversion?
indirect conversion
With indirect conversions, the gain recognized is the (lesser/greater) of ____ ________ OR amount of _____________ the taxpayer does not _______ in qualified property.
lesser; gain realized; reimbursement; reinvested
Qualified replacement property must be of a _______ or _______ ___ to the converted property.
similar; related use
Installment Sales is a special circumstance where we have ___-___________ of gains
non-recognition
When sale proceeds are received in more than one period it is called ___________ _____.
installment sales
With installment sales the taxpayer must recognize _______ of gain on each ___________ ________ received. Show calculation to figure gain to recognize.
portion; installment payment
gross profit % = gross profit/contract price
Under installment sale rules which items cannot be accounted for? Thus, any gain related to these items is _____ recognizable in the year of sale.
inventory; marketable securities; depreciation recapture
fully
Installment sales do not apply to ______.
losses
Assets stolen, damaged or completely destroyed by a force outside control of the business is known as what?
Business Casualty Losses
Business casualty losses are deducted __ ___ ____ the casualty occurs or theft is discovered
in the year
When a business casualty results in complete destruction it is treated as ____ for insurance proceeds received, if any, and ____ if less than ________ _____.
sold; loss; adjusted basis
When a business casualty results in damaged but not destroyed the loss is the _______ _______ minus the lesser of: ________ _____ of the asset OR _______ __ _____ due to casualty.
insurance proceeds; adjusted basis; decline in value
C corporations may have ____ /___ difference related to gain or loss.
book/tax
Book/tax differences arise because __________ expenses that makes the _________ basis different for book and tax.
depreciation; adjusted
Entry for book/tax difference is really a ________ for ___________ on the disposed asset.
reversal; depreciation
The book/tax difference reversal entry is initially ___________.
unfavorable
