Transactions in Property Flashcards by Grace-Allison Patchett

T/F

The basis of property acquired by purchase includes cash paid and liabilities incurred

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example abstract of title fees

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example installation of utility services

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example legal fees for a title search

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example legal fees for a contract or deed

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example recording fees

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example surveys

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example transfer taxes

TRUE

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T/F

The basis of property acquired by purchase includes settlement fees & closing costs, for example Owner’s Title Insurance

TRUE

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T/F

The basis of property acquired by purchase includes any amount that the seller owes that the buyer agrees to pay, such as back taxes and interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions

TRUE

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A donee’s basis for appreciated property received as a gift and sold at a gain is generally _____

the same as the donor’s basis

NOT the FMV at the time the gift was received

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A donee’s basis for gift property that has appreciated is generally the same as the donor’s basis _________ (increased/decreased) by any gift tax paid that is attributable to the property’s net appreciation in value

Increased

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How is a donee’s basis for appreciated gift property increased by any gift tax paid that is attributable to the property’s net appreciation in value? (Formula)

Donor’s Basis @ Time of Gift +

[Gift Tax * (FMV - Current Basis)/(FMV - Gift Tax)]

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A donee’s basis for depreciated property received as a gift and sold at a loss is generally _____

The lesser of 1) its gain basis 2) The FMV at the time the gift was received

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If depreciated property received as a gift is sold at a loss, when is the beginning of the holding period of the stock for purposes of determining the loss?

The year received, since the basis being used is the FMV at the time the gift was received.

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T/F

If property acquired by gift is sold and 1) the basis for loss results in a gain and 2) the basis for gain results in a loss, no gain/loss is reported.

TRUE

For example, assume the donor’s basis is $4000, the FMV at the time of the gift was $3000, and the gift is sold for $3500.

Using the basis for loss ($3000), this selling price would yield a $500 gain. Using the basis for gain ($4000), this selling price would yield a $500 loss.

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What is the holding period for stock received as a bequest from the estate of a deceased relative?

Property received from a decedent is deemed to be held long-term REGARDLESS of the actual period of time that the decedent or beneficiary actually held the property.

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Property received from a decedent generally has what basis?

Either the 1) FMV at date of the decedent’s death OR 2) FMV on the alternate valuation date

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When is the alternate valuation date in regards to a decedent’s estate?

6 months after death

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If the estate elected to use the alternate valuation date and the property is received after the decedent’s death but before the alternate valuation date, what is the basis of the property to the individual receiving it?

the FMV on date of distribution

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What defines a Sec. 1231 asset?

An asset held for use in an individual’s trade or business

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When a stock dividend is received, what is the holding period for the stock that was received?

Since the tax basis of the stock received as a dividend is, in part, determined by the basis of the original stock, the holding period of the dividend stock includes the holding period of the original stock.

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In a like-kind exchange of property held for investment, a realized gain will be recognized only to the extent of ______

Unlike Property Received (Boot)

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In a like-kind exchange of property held for investment, the basis of the acquired like-kind property is equal to what? (Formula)

The Basis of the Original Property Transferred + Gain Recognized - Boot Received

T/F Convertible Debentures is an exchange that qualifies for nonrecognition of gain/loss as a like-kind exchange.

FALSE The exchange of business or investment property solely for like-kind business or investment property is treated as a nontaxable exchange. Like-kind means "the same class of property" in that real property must be exchanged for real property and personal property must be exchanged for personal property. 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

T/F Convertible Preferred Stock is an exchange that qualifies for nonrecognition of gain/loss as a like-kind exchange.

T/F Partnership Interests is an exchange that qualifies for nonrecognition of gain/loss as a like-kind exchange.

T/F Rental Real Estate located in Different States is an exchange that qualifies for nonrecognition of gain/loss as a like-kind exchange.

TRUE

In a like-kind exchange, gain is recognized to the extent of _____

The lesser of 1) Boot Received 2) Gain Realized

Assume that $25K of Cash is received as Boot by x1. Additionally 2 mortgages are exchanged - a mortgage is given up by x1 in the amount of $100k and a mortgage is assumed by x1 in the amount of $125k. This means that net, x1 assumed $25k in mortgage liability (gave more mortgage boot to x2 than was received from x2). What does this mean for calculating boot?

The boot received will be just the cash. The boot received in the form of cash cannot be offset against the boot given in the form of an assumption of a mortgage.

An *individual* may exclude from income up to _____ of gain that is realized on the sale/exchange of a residence if the individual owned and occupied the residence as a principle residence for an aggregate of at least ___ of the ____ years preceding the sale or exchange

$250,000 2 years 5 years

Married individuals filing jointly may exclude from income up to _____ of gain that is realized on the sale/exchange of a residence if either individual owned and occupied the residence as a principle residence for an aggregate of at least ___ of the ____ years preceding the sale or exchange

$500,000 2 years 5 years

No loss can be deducted on the sale of stock if substantially identical stock is purchased within _______ before or after the sale. If the taxpayer acquires less than the number of shares sold, the amount of loss that cannot be recognized is determined by ______

30 days The ratio of the number of shares acquired to the number of shares sold

No loss can be deducted on the sale of stock if substantially identical stock is purchased within 30 days before or after the sale. Any loss that is not deductible because of this rule is _____

Added to the basis of the new stock

This is the purchase of substantially identical stock within 30 days of the sale of stock at a loss

Wash Sale

A loss incurred in a wash sale is ______ (allowed/disallowed)

Disallowed

T/F A loss that is disallowed in a wash sale is ignored/gone forever

FALSE A wash sale is when stock is sold at a loss and substantially identical stock is purchased within 30 days of the sale of the stock at a loss. The loss is added to the cost of the newly purchased stock to calculate the basis of the new stock.

In a wash sale, the holding period of the newly purchased stock _______ (includes/does not include) the holding period of the wash sale stock

Includes

Worthless securities generally receive _____ treatment

Capital Loss Treatment

Worthless securities generally receive capital loss treatment. However, if the loss is incurred by a corporation on its investment in an affiliated corporation (80% or more ownership) the loss is generally treated as _____

An ordinary Loss

Losses are _____ (allowed/disallowed) on sales or exchanges of property between related taxpayers, including members of a family

Disallowed

Losses are disallowed on sales or exchanges of property between related taxpayers, including members of a family. Any gain later realized by the related transferee on the subsequent disposition of the property is ______ (recognized/not recognized) to the extent of _______. Any loss later realized by the related transferee is ______ (recognized/not recognized) to the extent of ______. This loss's holding period is based on ______

NOT Recognized The transferor's disallowed loss. Recognized To the full extent The transferee's holding period, because their basis is determined by their cost, not by their transferor's/relative's cost.

T/F A Mother-in-law and daughter-in-law are a related party in which losses from sales and exchanges are not recognized for tax purposes

FALSE

T/F An uncle and nephew are a related party in which losses from sales and exchanges are not recognized for tax purposes

FALSE

T/F A brother & sister are a related party in which losses from sales and exchanges are not recognized for tax purposes

TRUE

T/F Ancestors, lineal descendates, and all in-laws are a related party in which losses from sales and exchanges are not recognized for tax purposes

FALSE

T/F Sec. 1245 applies to both gains and losses

FALSE Sec. 1245 only applies to gains

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

TRUE The trade date is the date on which the trade is executed. This is the date any resulting gain or loss is recognized for both cash AND accrual method taxpayers.

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

FALSE

T/F For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the date of receipt of cash proceeds

FALSE

T/F For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the date of delivery of stock certifiate

FALSE

T/F An individual's net capital loss can be offset against ordinary income

TRUE

An individual's net capital loss can be offset against ordinary income up to a maximum of ____ or ______ if married filing separately.

$3000 $1500

An individual's net capital loss can be offset against ordinary income up to a maximum of $3000 or $1500 if married filing separately. Any net capital loss in addition to this limitation is ______ (lost/carried over)

Carried over

T/F Like an individual, a corporation's net capital loss can be offset against ordinary income

FALSE Corporations do not get this treatment

Since Corporations are not able to offset ordinary income with their net capital loss, how is a net capital loss treated?

Carried back 3 years and forward 5 years as a STCL to offset capital gains in those years.

T/F An individual sold an item, purchased for personal use, at a loss. This loss will be treated as either a STCL or LTCL, depending on the holding period

FALSE Since the item was held for personal use, the sale of the antique at a loss is NOT deductible

T/F Capital Assets include a corporation's A/R from the sale of its inventory

FALSE The definition of capital assets includes property held as an investment. The definition specifically excludes A/R arising from the sale of inventory, depreciable property used in a trade or business, and property held primarily for sale to customers in the ordinary course of a trade or business

T/F Capital Assets include a 7-year MACRS property used in a corporation's trade or business

T/F Capital Assets include a manufacturing company's investment in US Treasury Bonds

TRUE The definition of capital assets includes property held as an investment. The definition specifically excludes A/R arising from the sale of inventory, depreciable property used in a trade or business, and property held primarily for sale to customers in the ordinary course of a trade or business

T/F Capital Assets include a corporate real estate developer's unimproved land that is to be subdivided to build homes, which will be sold to customers

T/F Not only does the definition of capital assets include property held as an investment, but also property held for personal use, such as a personal residence or furnishings

TRUE

T/F The definition of capital assets includes property used in a trade or business

FALSE These items are excluded from the definition of Capital Assets

T/F When personal property (included in the definition of a capital asset) is sold at a gain, the gain will be reported as ordinary income

FALSE It is recorded as a LTCG

T/F When personal property (included in the definition of a capital asset) is sold at a loss, the loss will be reported as a LTCL

FALSE If personal-use property is sold at a loss, the loss is not deductible.

A capital loss incurred by a married couple filing a joint return will be allowed to the extent of _____ plus up to ______

Capital Gains $3000 of Ordinary Income

Section 1231 assets generally only include _____

Both Depreciable and Non-Depreciable assets used in a trade or business

Section 1245 & 1250 assets only include ____

Depreciable Assets

How is an agreement not to operate a competing enterprise treated?

Ordinary Income in the year received

A covenant not to compete is NOT a ____

Capital Asset

Inventory & Property held for sale to customers are specifically _______ (included/excluded) from the definition of Sec. 1231 assets

Excluded

A/R & N/R arising in the ordinary course ofa trade or business are specifically _______ (included/excluded) from the definition of Sec. 1231 assets

Excluded

T/F Business Inventory is considered Sec 1231 property

FALSE

T/F Unimproved land used for business is considered Sec 1231 Property

TRUE

T/F Depreciable equipment used in a business is considered Sec 1231 Property

TRUE

T/F Depreciable real property used in a business is considered Sec 1231 Property

TRUE

A gain from the disposition of 7-year tangible property is subject to _____ under ______

Recapture Sec 1245

Sec. 1245 recaptures gain to the extent of ____ as ordinary income

All depreciation previously deducted

Sec. 1245 recaptures gain to the extent of all depreciation previously deducted as ordinary income. The remaining gain will be classified as _____

Sec. 1231 Gain

A gain on the sale of a building is subject to _____ under ______

Recapture Sec 1250

Sec. 1250 recaptures gain to the extent of _____ as ordinary income

"Excess" Depreciation (depreciation deducted in excess of straight-line) - THEREFORE, if straight-line depreciation is used then there would be no recapture under Sec. 1250

Sec. 1250 recaptures gain to the extent of excess depreciation as ordinary income. The remaining gain will be classified as ____

Sec. 1231 Gain

Sec. 291 requires that the amount of ordinary income on the disposition of Sec. 1250 property by corporations be increased by ______ of the additional amount that would have been ordinary income if the property had instead been Sec. 1245 property

20%

Boot given in the form of an assumption of a liability _____ (does/does not) offset boot received in the form of cash or unlike property

DOES NOT

Boot given in the form of cash or unlike property ____ (does/does not) offset boot received in the form of a liability assumed by the other party

DOES