Property Transactions

Question 1

Capital Gains and Losses

Answer 1

Amount realized less adjusted basis = gain or loss.

Gains excluded or deferred (mnemonic HIDE IT); know the boot rules (gain recognized only to extent of boot).

Question 2

Adjusted basis

Answer 2

General rule purchase price. For gift property, use the lower FMV at date of gift if selling at a loss. Inherited property basis rules = FMV on the date of death or alternative valuation date

Question 3

Capital Gains and Losses includes

Answer 3

Nondeductible losses (mnemonic WRaP), wash sale (30 days before or after), and related party transactions (same concept as gift rules as far as taxability).

Question 4

Individual Capital Gain and Loss Rule

Answer 4

Know holding period, maximum long-term rates (20 percent rate for 2014), maximum other gains rates, $3,000 maximum capital loss deduction and no carryback—unlimited carryforward.

Question 5

Corporate Capital Gain and Loss Rules

Answer 5

No net capital losses, three-year carryback and five-year carryforward provision

Question 6

MACRS

Answer 6

Modified Accelerated Cost Recovery System.

For property other than real estate: 200 percent for 3, 5, 7, and 10-year property.

150 percent for 15 and 20-year property.

Half-year convention, unless purchase more than 40 percent of property in the last quarter—then mid-quarter convention.

For real estate (straight-line): 27.5-year residential and 39-year nonresidential. Use mid-month convention.

Question 7

Section 179 Deduction (for machinery and equipment)

Answer 7

$25,000 deduction if purchased up to $200,000 in machinery and equipment, reduced dollar for dollar on any purchased in excess of $200,000.

Question 8

Depletion and Amortization Rule

Answer 8

Cost Depletion = Cost/estimated resources, or percentage depletion, which is 50 percent of taxable income except for oil or gas (100 percent).

Amortization: 15 year straight-line for intangibles.

Note that research expenses are amortized over 60 months.

Question 9

Section 1231

Answer 9

Net 1231 gain = Capital gain

Net 1231 loss - Ordinary loss (fully deductible)

Question 10

Section 1245

Answer 10

All accumulated depreciation on machinery and equipment is recaptured as ordinary income

Question 11

Section 1250

Answer 11

Any accelerated depreciation on real estate in excess of straight-line depreciation is recaptured as ordinary income.