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
