EA Part 2-Passkey 9-10

Question 1

Section 1245 property includes any property that is or has been subject to depreciation or amortization and is:

Answer 1

1. Personal property,
2. Other tangible property (other than a building/its components):
   a) Used in manufacturing, production, extraction or furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services,
   b) A research facility used for the activities above
   c) A facility used in (production) for the bulk storage of fungible commodities,
3. Real property (other than ppt with recapture deductions)
4. A single purpose agricultural or horticultural structure, or
5. A storage facility (other than a building/its structural components) used for the distribution of petroleum.

Question 2

The basis of the property you receive, in a partially nontaxable exchange, is the same as the basis of the property you gave up, with the following adjustments.

Answer 2

*Additional money paid, including exchange expenses,
+FMV of any non-like kind property transferred to other party,
+Net liabilities assumed by the taxpayer, and
+Any gain recognized on the exchange.

• Boot received (money, FMV of non-like kind property, net liabilities other party assumes)
• Any loss recognized on the exchange.

Question 3

Section 197 are

Answer 3

intangibles;

such as copyrights and patents, which must be amortized not depreciated

Question 4

MACRS is the depreciation method generally used for most

Answer 4

tangible property;

such as machinery, buildings, & autos

Question 5

Placed-in-service date is when ___ begins.

Answer 5

depreciation

Item must be ready & available for use.

Question 6

An asset cannot be depreciated below its __

Answer 6

salvage (or scrap) value. Therefore basis for deprec. is cost minus salvage value.

Question 7

Three common depreciation methods:

Answer 7

1) straight-line
2) double-declining balance
3) unit-of-production method (eg., # of miles driven or units produced)

Question 8

To properly report the disposition of an asset, a TP must first determine whether it’s a…

Answer 8

• capital asset
• noncapital asset or
• Section 1231

Question 9

Listed property includes

Answer 9

cars, other vehicles for transport, property use for entertainment, recreation or amusement, certain computers

Question 10

Capital asset

Answer 10

• personal-use assets
• collectibles and
• investment ppt such as stocks, bonds, other securities

Question 11

Section 1231 Assets are ___

Answer 11

• business (noncapital) assets that have been held > 1 year
• certain business & investment ppt disposed of in involuntary conversions
• real ppt for business use
• business-use ppt involuntarily converted by theft, casualty, condemnation

Question 12

If TP has a net loss from all Section 1231 transactions, the loss is treated as __

Answer 12

ordinary loss.

Question 13

Noncapital assets

Answer 13

• inventory
• accounts receivable
• other assets used in a trade or business
• residential rental property
• used to produce royalties

Question 14

Section 1231 assets include depreciable business property such as __

Answer 14

• buildings,
• machinery
• timber and unharvested crops
• livestock
• leaseholds.

Question 15

Sections 1231 assets can also include nondepreciable ___

Answer 15

real property (such as land that is purchased for business use)

Question 16

If TP has a net gain from all Section 1231 transactions, the gain is generally treated as __

Answer 16

capital gain (except for depreciation recapture, which is taxed as ordinary income).

Question 17

Sections 1231 assets can also include intangibles like ___

Answer 17

a patent, copyright or other intangible asset used in business.

Question 18

Types of buildings that qualify for Section 1231 treatment:

Answer 18

• hotels
• office buildings
• warehouses
• residential apt complexes

Question 19

Sections 1231 assets can also include any asset held for more than 1 year that is ___

Answer 19

used for the production of income and has been involuntarily converted due to theft, casualty or condemnation.

Question 20

Depreciation recapture is required when ___

Answer 20

a business sells previously depreciated or amortized property at a gain. Portion of gain attributable to deprec. is treated as ordinary income.

Question 21

A fungible good or asset is ____

Answer 21

is essentially interchangeable with other goods or assets of the same type.
Ex: dollar bill; no difference between one dollar and another.

Question 22

Section 1250 property generally consists of ___

Answer 22

• buildings (& structural components)
• other inherently permanent structures
• land improvements of general use and purpose.

Question 23

Form 4797

Answer 23

Sales of Business Property

Question 24

Examples of Section 1250 property

Answer 24

• residential rental ppt
• factory bldgs
• office bldgs

Question 25

Form 6252

Answer 25

Form 6252 Installment Sale Income

Question 26

Section 1250 property is general depreciated using __

Answer 26

straight-line method (and can mean no depreciation recapture.)

Question 27

Section 1031

Answer 27

Like-Kind Exchanges; income from the exchange is not taxable currently but is deferred until acquired ppt is later sold or disposed of

Question 28

Section 1031 timetables

Answer 28

Exchanger has 45 days max after sale to identify list of potential replacement ppts, and 180 days after sale to acquire one of those properties.

Question 29

If qualified intermediary is not used for a Section 1031 exchange, ___

Answer 29

the exchange will not be allowed.

Question 30

A business or individual may have to recognize gain on a partially taxable like-kind exchange, but would never recognize a ___

Answer 30

loss. However, a loss on a like-kind exchange would affect the TP’s basis in ppt received.

Question 31

The basis of ppt received in a like-kind exchange is generally __

Answer 31

the adjusted basis of the property transferred.

Question 32

If a TP trades ppt and also pay money, the basis of the ppt received is ___

Answer 32

the basis of the ppt given up, increased by any additional money paid.

Question 33

Section 1033 conversion

Answer 33

TP may avoid reporting gain on an Involuntary Conversion if he receives or invests in ppt similar to the converted ppt.

Question 34

The replacement period for an involuntary conversion generally ends ____ after the end of the first tax year in which any part of the gain on the condemnation is realized.

Answer 34

• 2 years
• 3 years allowed for real ppt held for investment, such as office bldgs or residential rentals.
• 4 years for livestock due to weather.
• 5 yrs in federally declared disaster areas

Question 35

A partially nontaxable exchange is an exchange in which ___

Answer 35

you receive unlike property or money in addition to like property.