Transactions in Property

Question 1

Adjusted basis

Answer 1

original cost or other basis of property increased by capital improvements and reduced by depreciation losses.

Question 2

Boot

Answer 2

Cash or other property not permitted to be received tax-free in certain nontaxable transactions.

Gain recognized due to receipt of boot = lesser of FMV of boot or amount of realized gain

Question 3

Capital asset

Answer 3

Generally all assets except inventory, notes and accounts receivable, and depreciable and non depreciable property used in a trade or business. (Property held for investment or personal use)

*loss not recognized on personal use assets (gain is still recognized)

Question 4

Involuntary conversion

Answer 4

when money or other property is received for property that has been destroyed, damaged, stolen or condemned. Recognized gain can generally be deferred if proceeds are reinvested in similar property

Question 5

Like-kind exchange

Answer 5

exchange of property for property of a like kind (excludes inventory, stocks, partnership interests, etc) generally no gain recognized unless boot is received

Question 6

Long-term capital gain or loss

Answer 6

gain or loss realized from the sale or exchange of a capital asset held for more than one year

Question 7

Related-taxpayer transactions

Answer 7

generally no loss can be recognized from the sale or exchange of property between related taxpayers, and may be taxed as ordinary income

Question 8

1231 property

Answer 8

depreciable or non-depreciable property used in a trade or business and held for more than one year (excluding inventory, AR, US gov publications, copyrights, literary, musical or artistic compositions)

*losses are ordinary, gains are long-term capital (unless recaptured against prior 5 year’s 1231 ordinary losses)

Question 9

1245 property

Answer 9

depreciable personal property used in a trade or business or held for production of income (examples: machinery, equipment, trucks)

Question 10

1245 recapture

Answer 10

gain from sale or exchange of 1245 property must be reported as ordinary income to the extent of the lesser of (1) all depreciation, or recognized gain

Question 11

1250 property

Answer 11

any real property (except 1245 property) that is subject to the allowance of depreciation

Question 12

1250 recapture

Answer 12

gain from sale or exchange of 1250 property must be reported as ordinary income to the extent that actual depreciation deductions exceeded what straight-line would have been.

If held for 12 months or less, gain on 1250 is recaptured as ordinary income to the extent of all depreciation.

Question 13

Wash sale

Answer 13

loss from the sale of stock or securities is disallowed because the taxpayer, within 30 days before or after sale, has acquired stock or securities that are substantially identical to those sold

Question 14

Basis in Gifted Property

Answer 14

to calculate a gain, basis = donor’s cost + gift tax paid

to calculate a loss, basis = lesser of FMV or donor’s cost + gift tax paid

additional basis for gift tax limited to:
gift tax x FMV-cost/FMV-exclusion ($14,000)

holding period will depend on which basis is appropriate

Question 15

Basis in Inherited Property

Answer 15

FMV at date of death, or alternative date if elected (generally 6-months after death)

Deemed to be long-term

Question 16

Qualified Small Business Stock

Answer 16

capital gains are 50% excludable if held for more than 5 years and acquired before 2009; 75% if before Sept 2010 and 100% if before 2014.

must have been acquired directly at original issuance

C-corp with $50 or less capitalization.

Eligible exclusion limited to greater of $10 mill or 10 times the investors stock basis

Question 17

291 property

Answer 17

1250 property owned by corporation

ordinary income on disposition of property must be increased by 20% of the amount that would have been ordinary income if the property was 1245 property