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Regulation > Transactions in Property > Flashcards

Transactions in Property Flashcards

1
Q

Subject: Transactions in Property
True or False- Gains and losses (including carryovers) within each of the capital rate groups are netted to arrive at a net gain or loss for each group. To do this, a net loss in any rate group is applied to reduce the net gain in the highest rate group first.

A

Subject: Transactions in Property
True
GAINS AND LOSSES (including carryovers) within each of the capital rate groups are netted to arrive at a NET GAIN OR LOSS for each group. To do this, A NET LOSS in any rate group is applied to reduce the NET GAIN in the HIGHEST RATE group first.

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2
Q

Subject: Transactions in Property

Define 1231 property

A

Subject: Transactions in Property
1231 Property is depreciable business property (personal and real) that has been held for over a year.

Section 1231 property includes buildings, machinery, land, timber and other natural resources, unharvested crops, cattle, livestock and leaseholds that are at least a year old.

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3
Q

Subject: Transactions in Property

When must a net section 1231 gain be treated as ordinary income?

A

Subject: Transactions in Property
A net section 1231 GAIN must be treated as ORDINARY INCOME to the extent or the taxpayer’s NON RECAPTURED 1231 losses for its 5 PRECEDING TAX YEARS.

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4
Q

Subject: Transactions in Property

Define 1245 property

A

Subject: Transactions in Property

1245 property is depreciable real and personal property

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5
Q

Subject: Transactions in Property

Define 1250 property

A

Subject: Transactions in Property
1250 property includes REAL ESTATE and REAL PROPERTY subject to depreciation that is, AND HAS NOT BEEN, section 1245 property.

1250 property is taxed similarly to 1245 property with the recapture of depreciation.

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6
Q

Subject: Transactions in Property

Describe the Section 1245 rule

A

Subject: Transactions in Property
Section 1245 recaptures gain as ORDINARY INCOME on the disposition of Section 1245 property to the extent of all depreciation (including S/L) PREVIOUSLY DEDUCTED. GAIN RECAPTURED CANNOT EXCEED GAIN RECOGNIZED.

Example
Selling Price $200,000
Cost $210,000
Depr ($30,000) 1245 gain
Adj Basis $180,000
________
Recog Gain $20,000 1245 limit

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7
Q

Subject: Transactions in Property

Give an example of a Section 1245 transaction.

A

Subject: Transactions in Property
Selling Price $200,000
Cost $210,000
Depr ($30,000) 1245 gain
Adj Basis $180,000
________
Recog Gain $20,000 1245 limit

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8
Q

Subject: Transactions in Property
True or False- In a like-kind exchange of investment property, a realized gain is recognized to the EXTENT OF UN-LIKE (BOOT) PROPERTY RECEIVED.

A

Subject: Transactions in Property
True
In a like-kind exchange of investment property, a realized gain is recognized to the EXTENT OF UN-LIKE (BOOT) PROPERTY RECEIVED.

For example, getting a $10,000 mortgage in exchange for a $12,000 mortgage.

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9
Q

Subject: Transactions in Property

Describe the Dying/ Alternate Valuation Date

A

Subject: Transactions in Property
Basis of property received from a decedent is generally the property’s FMV at date of decedent’s death or FMV on Alternate Valuation date (6 months after death)

Look for election

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10
Q

Subject: Transactions in Property

How are worthless securities treated from a tax perspective?

A

Subject: Transactions in Property
Worthless securities generally receive CAPITAL LOSS treatment.
If loss is incurred by a corporation on its investment in an affiliated subsidiary corporation (80% or more ownership), the loss is generally an ORDINARY LOSS.

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11
Q

Subject: Transactions in Property

How are Involuntary Conversions handled from a tax perspective?

A

Subject: Transactions in Property
REALIZED GAIN from involuntary conversions is only recognized to the extent that the insurance proceeds are not reinvested in similar property.

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12
Q

Subject: Transactions in Property

What is the Replacement Period for Involuntary Conversions?

A

Subject: Transactions in Property
Replacement Period for Involuntary Conversions are 3 years after the close of the taxable year in which the gain was first realized.

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13
Q

Subject: Transactions in Property

What is the basis of property acquired by gift if it is sold at a GAIN?

A

Subject: Transactions in Property
Basis of property acquired by gift if it is sold at a GAIN
- Basis is the donor’s BASIS, increased by any gift tax paid attributable to the net appreciation in the value gift

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14
Q

Subject: Transactions in Property

What is the basis of property acquired by gift if it is sold at a LOSS?

A

Subject: Transactions in Property
Basis of property acquired by gift if it is sold at a LOSS
- Basis is the lesser of (1) its GAIN basis or (2) its FMV at the date of gift.

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15
Q

Subject: Transactions in Property
True or False- No gain or loss is recognized on the sale of property acquired by gift if the BASIS FOR LOSS results in a GAIN and the BASIS FOR GAIN results in a LOSS

A

Subject: Transactions in Property
True
No gain or loss is recognized on the sale of property acquired by gift if the BASIS FOR LOSS results in a GAIN and the BASIS FOR GAIN results in a LOSS

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16
Q

Subject: Transactions in Property

How is the basis chosen for situations with Alternate Valuation Dates (six months after death)?

A

Subject: Transactions in Property
If alternate valuation date (six months after death) is chosen,
1. Basis is FMV at AVD if stock is distributed AFTER alternate valuation date (six months after death) .
2. Basis is FMV at date of distribution if stock is distributed BEFORE alternate valuation date.

17
Q

Subject: Transactions in Property
True or False- If the tax basis of the preferred stock is determined in part by the basis of the common stock, the holding period of the preferred stock includes the holding period of the common stock (i.e., the holding period of the common stock tacks on to the preferred stock).

A

Subject: Transactions in Property
True
If the tax basis of the preferred stock is DETERMINED IN PART BY THE BASIS OF THE COMMON STOCK, the holding period of the preferred stock includes the holding period of the common stock (i.e., the holding period of the common stock TACKS ON to the preferred stock).

18
Q

Subject: Transactions in Property
True or False- The like-kind exchange provisions apply to exchanges of stocks, bonds, notes, convertible securities, the exchange of partnership interests, and property held for personal use.

A

Subject: Transactions in Property
False
The like-kind exchange provisions DO NOT APPLY to exchanges of stocks, bonds, notes, convertible securities, the exchange of partnership interests, and property held for personal use.

19
Q

Subject: Transactions in Property

True or False- Boot received includes the assumption of the mortgage by the other party.

A

Subject: Transactions in Property
True
Boot received includes the assumption of the mortgage by the other party.

20
Q

Subject: Transactions in Property
True or False- Boot received in the form of cash can be offset against boot given in the form of an assumption of a mortgage.

A

Subject: Transactions in Property
False
Boot received in the form of cash CANNOT be offset against boot given in the form of an assumption of a mortgage.

21
Q

Subject: Transactions in Property

How is the Gift Tax Paid defined as?

A

Subject: Transactions in Property
Gift Tax Paid is the increase in basis for gift tax paid is limited to the amount (not to exceed the gift tax paid) that bears the same ratio to the amount of gift tax paid as the net appreciation in value of the gift bears to the amount of the gift.

22
Q

Subject: Transactions in Property

How is property acquired by death valued?

A

Subject: Transactions in Property
If property is acquired by death, its basis to the acquirer is the FMV on the date of death.
Property inherited from a decedent having a FMV basis is considered to be held for than 12 months regardless of its actual holding period.

23
Q

Subject: Transactions in Property

How is the Gift Tax Paid calculated?

A

Subject: Transactions in Property

Gift Tax Paid= Basis+((Gift Tax X (FMV-basis)/(FMV-$14,000 exclusion)))

24
Q

Subject: Transactions in Property

How is a transfer of property that is in part a sale and in part a gift handled?

A

Subject: Transactions in Property
Where a transfer of property is in part a SALE and in part a GIFT, the basis of the property in the hands of the TRANSFEREE is generally the GREATER of
(1) the amount paid by the transferee for the property or
(2) the TRANSFEROR’S basis for the property at the time of the transfer.

25
Q

Subject: Transactions in Property

How are related party transactions handled in the transfer of property?

A

Subject: Transactions in Property
LOSSES are disallowed on sales of property between related taxpayers.
Any GAIN later realized by the transferee on the disposition of property is not recognized to the extent of the TRANSFEROR’S disallowed loss.

26
Q

Subject: Transactions in Property

How is the holding period recognized in the transfer of gifts?

A

Subject: Transactions in Property
If the basis of a property to a prior owner carries over to the present owner (gift), the holding period of the prior owner “tacks on”

If using the FMV on date of gift to determine the loss, then the holding period begins when the gift is RECIEVED.

27
Q

Subject: Transactions in Property

How is the basis of like-kind property received calculated?

A 
Subject:  Transactions in Property
Basis of like-kind property given
\+ Gain recognized
\+Basis of boot given (money or property not of a like kind)
-Loss recognized
-FMV boot received
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Basis of like-kind property received
28
Q

Subject: Transactions in Property

How are gains and losses handled in a like- kind exchange when boot is involved?

A

Subject: Transactions in Property
In a like-kind exchange,
If boot is received,
1. Any realized gain is recognized to the extent of the lesser of
a. the realized gain
b. the FMV of boot received.
2. No loss is recognized due to the receipt of boot.

Note that boot can include cash and unlike personal property.

29
Q

Subject: Transactions in Property

For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the trade date or settlement date?

A

Subject: Transactions in Property

For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the trade date.

30
Q

Subject: Transactions in Property

What does the term “capital assets” include?

A

Subject: Transactions in Property
Capital Assets INCLUDE
1. Property held as an investment
2. Property held for personal use (if sold as a gain)

31
Q

Subject: Transactions in Property

What does the term “capital assets” exclude?

A

Subject: Transactions in Property
Capital Assets EXCLUDE
1. Accounts Receivable arising from the sale of inventory
2. Depreciable property used in a trade or business.
3. Property held primarily for sale to customers I the ordinary course of a trade or business (inventory).

32
Q

Subject: Transactions in Property

True or False- Section 1245 and 1250 only include depreciable assets

A

Subject: Transactions in Property
True
Section 1245 and 1250 only include depreciable assets.

Remember sections 1245 and 1250 intent by the IRS is to account for depreciation recapture as ordinary income instead of capital gain income.

33
Q

Subject: Transactions in Property

True or False- Section 1245 applies to both gains and losses.

A

Subject: Transactions in Property
False
Section 1245 only applies to gains

34
Q

Subject: Transactions in Property

Explain Section 1250 recapture

A

Subject: Transactions in Property
Section 1250 recaptures GAIN as ORDINARY INCOME to the extent of “excess” depreciation (ie depreciation deducted in excess of straight line).
The TOTAL GAIN less and DEPRECIATION RECAPTURE (depreciation deducted in excess of straight line) is 1231 GAIN.

35
Q

Subject: Transactions in Property
Explain how is Section 1250 recapture is affected on a property transaction when S/L depreciation is used for tax purposes?

A

Subject: Transactions in Property
When S/L depreciation is used on a Section 1250 recapture, Sec 291 applies

Sec 291- requires that the amount of ORDINARY INCOME on the disposition of Section 1250 property by corporations be increased by 20% of the additional amount that would have been ORDINARY INCOME if the property had instead been Section 1245 property.

Example

Selling Price $200,000
Cost $210,000
S/L Depr ($30,000) 291 taking place
(30,000 X .20= 6000)
Adj Basis $180,000
________
Recog Gain $20,000 291 limit

As a result, Sec 291 ORDINARY INCOME is $6000 and $14,000 is SECTION 1231 gain.

36
Q

Subject: Transactions in Property

Give an example of a Section 1250 transaction where section 291 kicks in

A

Subject: Transactions in Property
Example- 1250 property ( was never 1245 property by definition)

Selling Price $200,000
Cost $210,000
S/L Depr ($30,000) 291 taking place
(30,000 X .20= 6000)
Adj Basis $180,000
________
Recog Gain $20,000 291 limit

As a result, Sec 291 ORDINARY INCOME is $6000 and $14,000 is SECTION 1231 gain.

37
Q

Subject: Transactions in Property

True or False: Section 1250 property can also be Section 1245 property

A

Subject: Transactions in Property
False
If a property is defined as Section 1250 property, it CANNOT also be Section 1245 property

1250 property includes REAL ESTATE and REAL PROPERTY subject to depreciation that is, AND HAS NOT BEEN, section 1245 property.

1250 property is taxed similarly to 1245 property with the recapture of depreciation.

38
Q

Subject: Transactions in Property
True or False- In a partnership, a partners loss beyond his/her basis may be carried forward and taken as a deduction in a subsequent year in which s/he has basis to absorb the loss.

A

Subject: Transactions in Property
True
In a partnership, a partners loss beyond his/her basis may be carried forward and taken as a deduction in a subsequent year in which s/he has basis to absorb the loss.

39
Q

Subject: Transactions in Property
True or False- In a like-kind exchange, a partner’s realized loss cannot be recognized, but instead is reflected in the basis of the new property.

A

Subject: Transactions in Property
True
In a like-kind exchange, a partner’s realized loss cannot be recognized, but instead is reflected in the basis of the new property.

Regulation (14 decks)

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