Chapter 11 Flashcards
Property Dispositions (22 cards)
How do you calculate a REALIZED gain (loss)?
Amount Realized - Adjusted Basis
What is included in AMOUNT REALIZED?
cash RECEIVED + FMV of other property RECEIVED + buyer’s assumption of liabilities - seller’s expenses
What is included in ADJUSTED BASIS?
Initial basis - depreciation allowed
What amount is used in the initial basis for PURCHASED ASSET?
asset’s cost
What amount is used in the initial basis for asset received as a GIFT?
donor’s basis (gen. rule),
- carryover basis
- holding period includes the donor’s holding period
What amount is used in the initial basis for asset received as INHERITED property?
FMV on the date of the decedent’s death (gen. rule)
- step-up basis
- holding period is always deemed L/T
What amount is used in the initial basis for asset property CONVERTED from personal use to business use?
at date of conversion
(1) FMV at date of conversion
(2) taxpayer’s adjusted basis
What must you determine about a gain or a loss?
character
What are “ordinary assets”?
assets used in a taxpayer’s trade/busa such as inventory, A/R
- also includes PP&E assets IF they have been used in a busa for <= 1 YEAR
What are “capital assets”?
- assets held for investment (stock) or personal use (car, house)
- netting process
- NLTCG –> preferential rates
- NSTCG –> ordinary rates
What is the cap on Net Capital Losses?
$3,000 per year (CF is indefinite)
What are “Section 1231” assets?
- in general they are PERSONALTY property and REAL property
-the property must be held for >1 YEAR
What is so good about gains (losses) from Section 1231 assets?
- net gains are treated as LTCG
- net losses are treated as ORDINARY loss (fully deductible against ordinary income)
What are the 2 hurdles to get the best possible treatment?
(1) INDIVIDUAL depreciable assets may be recharacterized as ordinary income under the depreciation recapture rules (1245)
(2) 5 year look back rule
Does depreciation recapture apply to losses on the sale of depreciable business property?
NO
What happen when you apply Section 1245 to the gain on the sale of a 1231 asset?
it recharacterizes from LTCG to ORDINARY gain
Section 1245 depreciation recapture is NOT for personalty property?
FALSE
Section 1250 is for depreciable real property?
TRUE
Section 1245 Property requires a taxpayer to ______?
characterize the gain on the sale of Section 1231 property as ORDINARY income to the EXTENT OF ANY prior depreciation taken on the property
- meaning regular deprec., bonus deprec., and Sec 179 deprec
Section 1250 depreciation recapture for depreciable real property (bldg) NO LONGER applies to individuals.
TRUE
Why does Section 1250 no longer apply to individuals?
requires the gain to be recaptured as ordinary income to the extent of “ADDITIONAL” depreciations taken over the SL method.
What is the Section 1231 look-back rule?
a NONdepreciating recapture rule
- applied AFTER the netting process of sec. 1231 assets
- the net gain for the CURRENT year will be considered ordinary income to the extent of the ‘nonrecaptured” net for 5 preceding tax years
