Tax - Property Transactions Flashcards

Tax - Property Transaction Tax

1
Q

What is the basic calculation for basis in property?

A

Cost of property + Purchase expenses + Debt assumed + Back taxes and interest paid = Basis. Note: taxes and interest related to time when a taxpayer did not own the property are not deductible - they are added to basis.

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2
Q

What is the recipient or donee’s basis on gifted property?

A

Sold at a gain: use donor’s basis Sold at a loss: use lesser of donor’s basis or FMV at time of distribution Sold in between donor’s basis and FMV: No gain or loss

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3
Q

What is the basis and holding period of inherited property?

A

FMV at date of death or alternate valuation date (6 months later) If alternate date is elected by property is sold before 6 month window; use FMV at date of death. Property inherited is LTCG property regardless of how long it is held by the recipient.

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4
Q

What is the holding period on a stock dividend?

A

Holding period of new stock received from a dividend takes on the holding period of the original stock

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5
Q

What property is eligible for like-kind exchange treatment?

A

Real for real or personal for personal business property only US property only

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6
Q

What is BOOT in a like-kind exchange?

A

Cash received + unlike property received + liability passed to other party

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7
Q

In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?

A

DO NOT subtract the boot paid amount from the cash received Ignore the boot paid amount from the mortgage completely

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8
Q

What is an involuntary conversion? When does it not result in a gain?

A

Occurs when you receive money for a property involuntarily converted There is no gain if you reinvest the proceeds completely If proceeds not completely reinvested; gain is LESSER of realized gain or amount not reinvested.

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9
Q

What are the requirements for exclusion of gain on a primary residence? How are losses treated?

A

Must live there 2 out of 5 years Loss on sale of home is NOT deductible

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10
Q

What is a wash sale?

A

30 Day rule applies Disallowed loss adds to basis of new stock New stock takes on date of acquisition of old stock

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11
Q

Who is considered a related party in a property transaction? How does it affect the transaction?

A

Ancestors; siblings; spouse; descendants; corporation or partnership where you’re a 50% shareholder Seller cannot take a loss on sale to a related party; but gain is always recognized. Related party gets to use the disallowed loss when they sell. Related party’s holding period begins when they acquire the property. In-laws are NOT related parties.

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12
Q

How are capital losses taken in a corporation?

A

capital losses only offset capital gains Carryback 3 years - if you elect NOT to carryback; you lost the option in the future Carry forward 5 years - only as STCL

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13
Q

What assets are NOT capital assets?

A

Inventory; Business interest; Accounts Receivable; Covenant not to compete Goodwill IS a capital asset

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14
Q

What are the steps in applying a capital gain or loss?

A

Net all STCG and STCL Net all LTCG and LTCL Add together Deduct $3;000

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15
Q

How much ordinary income can be offset by an INDIVIDUAL’s capital losses?

A

$3;000 per year. Unused is carried forward and taken $3;000 each year. No carryback is allowed.

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16
Q

Which property is governed by section 1231?

A

Real or Personal Business Property held more than a year Inventory is never 1231 Property

17
Q

How are section 1231 gains and losses handled?

A

Casualty Losses on 1231 Property - Net the losses * Net Loss = Ordinary Loss * Net Gain = Combine with other 1231 Gains 1231 Net Loss - If 1231 Losses exceed gains; treat as Ordinary Loss 1231 Net Gain - If 1231 Gains exceed losses; treat at LTCG 1231 Gain = LTCG 1231 Loss = Ordinary Loss

18
Q

How is section 1245 depreciation recapture handled; and when does it apply?

A

To the extent of depreciation; treat as ordinary gain Remainder is 1231 gain; which is LTCG - There are no 1245 Losses 1231 Gain = LTCG 1245 Gain = Ordinary Casualty Gain = LTCG 1231 Loss = Ordinary 1245 Loss = N/A Casualty Loss = Ordinary

19
Q

What property qualifies for section 1250 treatment; and how are gains/losses handled?

A

1250 property is Real Estate Use 1250 for Gain only. For losses; use 1231 Individuals: Post-1986 property with a gain is 1231 LTCG If Straight Line depreciation is used; don’t use 1250 - Entire gain is 1231 Corps: Section 291 requires 20% of depreciation classified as ordinary gain Remainder is 1231 LTCG

20
Q

When are 1231; 1245 and 1250 gains or losses always ordinary?

A

When the asset is held less than one year.