ITX - 38 Flashcards by Anonymous Student

(38.2) Capital assets are all of a taxpayer’s assets, except:

inventory or property
depreciable property
real estate
accounts or notes receivable
supplies
copyright, composition, or artwork, if held by the creator

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(38.2) Holding period: long-term asset if held for?

more than 12 months.

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(38.2) Holding period: short-term asset if held for?

12 months or less

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(38.2) Holding period for assets purchased?

The day after purchase and includes the day of disposition

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(38.2) Holding period for property, partnership interests, or stock acquired through an exchange: the basis in the acquired property is determined by reference to ___ (as in a like-kind exchange); then, the holding period of the asset received includes the holding period of ___.

the property given up

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(38.2) Holding period of a gift: The ___ holding period includes the time the ___ held the property, but does not include the time that the property was held by the ___ if the property was sold at a ___ and the FMV was less than the ___ adjusted basis at the time of the gift.

donee's
donor
donor
loss
donor's

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(38.2) Holding period of a bequest: Always considered by the recipient for ___, unless it is purchased by the estate for distribution to the recipient.

more than a year

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(38.2) Total tax on long-term capital gains rate for taxpayers in the 39.6% tax brackets.

23.8% (20% + 3.8% Medicare Contribution tax on unearned income)

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(38.2) Total tax on long-term capital gains rate for taxpayers in the 33% and 35% tax brackets.

18.8% (15% + 3.8% Medicare Contribution tax on unearned income)

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(38.2) Total tax on long-term capital gains rate for taxpayers in the 25% and 28% tax brackets.

15%

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(38.2) Total tax on long-term capital gains rate for taxpayers in the 10% and 15% tax brackets.

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(38.3) Capital gains recognized when assets are held for 12 months or less are taxed as ___.

ordinary income

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(38.3) Losses from sale of capital assets: Only $___ per year of net capital losses can be used to reduce ordinary income.

$3,000

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(38.3) The ___ on municipal bonds are subject to tax, even though the ___is free of federal income tax.

capital gains

interest income

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(38.3) Short-term capital losses can offset ___, long-term capital losses can offset ___, and net-short term capital gains can offset ___.

short-term capital gains (or losses)
long-term capital gains (or losses)
net long-term capital gains (or losses)

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(38.4) Capital gains rate for collectibles

28%

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(38.4) Capital gains rate for unrecaptured Section 1250 gain (real estate)

25%

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(38.4) To qualify, the taxpayer must have owned and occupied the home as a principal residence in __ years before the sale. The exclusion may only be used every ___ years.

two out of the last five

two

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(38.4) If the taxpayer acquired the home in a like-kind exchange, the taxpayer must have owned the home for __ years to qualify for an exclusion.

five

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(38.4) If the client lived in the home for less than two years due to unforeseen circumstances, the maximum exclusion is multiplied by ___ divided by ___.

the number of months lived in the home

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(38.5) Widowed spouses are able to claim the $500,000 exclusion when they sell their principal residence provided the home is sold within ___ years of the deceased spouse’ death.

two

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(38.6) The maximum amount of time allowed to be away from the home and still qualify as qualified use is ___ years for the change of employment, health condition or other unforeseen situations.

two

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(38.6) The unearned income medicare contribution tax: The tax applies to investment income from?

dividends
interest
annuities
royalties
rents
gains from disposition of property
income from passive activities
gain in excess of Sec. 121 exclusion ($500,000 MFJ, $250,000 single)

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(38.7) A taxpayer cannot create a __ with a home office deduction. Home office expenses can only offset ___.

loss

net income

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(38.7) Deduction for home office expenses: If depreciation is taken as an expense for a home office, the depreciation is subject to ___ at the time of the sale of the residence. The gain is ___ gain and is subject to a maximum tax rate of ___%.

recapture unrecaptured Section 1250 gain 25%

(38.7) Deduction for home office expenses: Deduction is determined by multiplying the allowable square footage (not to exceed ___ square feet) by $___. The maximum a taxpayer can deduct annually under the safe harbor is $___.

300 square feet $5 $1,500

(38.8) Assets used in a trade or business: Section 1231 applies if assets have been held for ___.

more than 1 year

(38.8) Assets used in a trade or business: If a Section ___ loss is deducted, and a Section ___ gain is realized in any of the subsequent __ years, then subsequent gains are treated as ___ income, to the extent of the loss.

1231 1231 5 years ordinary

(38.8) Depreciation recapture: All assets subject to depreciation recapture provisions of Sections ___.

1245 & 1250

(38.8) Depreciation recapture: Section ___ covers personal property

1245

(38.8) Depreciation recapture: Section ___ governs real property sales

1250

(38.8) Depreciation recapture: Section 1245 covers ___.

personal property

(38.8) Depreciation recapture: Section 1250 governs ___.

real property sales

(38.8) Depreciation recapture: For Section 1245 property that has depreciated, the gain is separated into two parts:

- The depreciation deduction that reduced basis | - The remaining gain

(38.8) Depreciation recapture: The gain attributable to depreciation deduction is taxed as ___ income and is called ___. Any remaining gain is a ___ gain, as stated in Section ___.

ordinary depreciation recapture capital gain Section 1231

(38.9) Section 1245 Property Recapture: The recapture look-back only applies to ___ property (tangible property that is not ___).

1245 | real estate

(38.9) Section 1245 Property Recapture: If the property is sold for a gain, the amount of cost recovery deduction taken will be taxed as ___. Any gain in excess of the cost-recovery deduction is ___ gain (taxed at capital gains rate).

ordinary income | 1231 gain

(38.9) Section 1245 Property Recapture: 1231 gain (capital gain) = The gain is realized as calculated by ___.

the difference between the purchase price and the selling price

(38.9) Section 1245 Property Recapture: 1245 gain (ordinary income) = If the ___ gain is realized, then the cost-recovery deduction (depreciation) is taxed at ordinary income rates

1231

(38.9) Section ___ and ___ are treated as depreciation deductions for depreciation recapture purposes

Section 179 and the bonus depreciation

(38.9) Section 1250 Recapture: The amount of real property depreciation to be recaptured is ___.

the difference between the actual depreciation deductions taken and the amount figured using the straight-line method

(38.9) Section 1250 Recapture: Because ___ uses straight-line depreciation for all real estate, depreciation recapture does not apply to any real estate depreciated under ___.

MACRS | MACRS

(38.10) Section 1250 Recapture: Any gain on the sale of real estate, up to the amount of any depreciation taken, is taxed at a ___% maximum rate, rather than the ___% rate. Additional gain is subject to the lower rate.

25% | 15%

(38.10) Section 1250 Recapture: Depreciation recapture may be triggered by ___ sales.

installment

(38.10) Section 1250 Recapture: All recapture amounts are taxable upon ___.

sale

(38.10) This rule applies to any sale where the taxpayer acquires substantially identical securities during the 30 days before or 30 days after the sale.

wash sales

(38.11) Bargain sales: Three situations in where a bargain sale might occur: 1) A ___ might make a sale of an asset at a substantially reduced price to a ___; 2) A ___ might sell an asset at a bargain price to a ___ organization; 3) A sale to an ____.

- corporation or employer - shareholder or employee - donor - charitable - individual

(38.11) Stock qualifies for special treatment under Section ___ if it is a stock in a domestic corporation and is issued for money or other property (not securities or services). The corporation must not have received more than $___ total in exchange for its stock and must receive ___% of its receipts from business operations.

Section 1244 $1 million 50%

(38.12) Owners of Section 1244 stock can deduct up to $___($___ if MFJ) per year in losses on the sale of Section 1233 stock against ___ income.

$50,000 $100,000 ordinary

(38.12) Sales with payments made over periods exceeding one year.

Installment sales

(38.12) Installment sales income calculation

Sale price - transaction costs - AB of the assets = Tentative gross profit Tentative gross profit/contract price = gross profit % Gross profit % x Total payments received (excluding interest) = Profit recognized in AGI

(38.13) The ___ method cannot be used with sales that result in a loss.

installment-sale method

(38.13) When an asset that is subject to depreciation recapture (tangible personal property) is sold using an installment contract, the amount of ___ recaptured is included in income in the year of ___, and only the ___ gain is reported using the installment method.

ordinary income sale additional capital gain

(38.13) When real estate has been depreciated and is sold in an installment sale, the gain may consist, in part, of ___, taxed at a maximum rate of 25%, and the remaining gain will be ___, taxed at a maximum of 15% (20% for high-income taxpayers. When both kinds of gain will be realized, the taxpayer reports the ___.

- unrecaptured Sec. 1250 gain - capital gain - 25% gain before any capital gain is taken

(38.14) If the buyer assumes the seller's mortgage in an installment sale: The total contract price is ___. If the mortgage assumed is greater than the seller's basis, then only ___ is deducted from the sale price to calculate the contract price.

- the sale price less the amount of the assume mortgage | - the amount of the seller's basis

(38.15) Involuntary conversion: Typically, taxpayers have until __ years after the end of the tax year in which the conversion occurred to obtain the replacement property.

two

(38.15) Involuntary conversion: Business property - have until __ years after the end of the tax year in which the conversion occurred to obtain the replacement property.

three

(38.15) Involuntary conversion: Principal residence in a declared disaster area - have until __ years after the end of the tax year in which the conversion occurred to obtain the replacement property.

four

(38.15) Involuntary conversion: In order to postpone the entire gain, the taxpayer must use ___ of the net proceeds to ___.

- all | - purchase or build the replacement property

(38.15) Losses from abandonment of business or investment property that is not treated as a sale or exchange is generally treated as an __ loss.

ordinary

(38.15) Abandoned Property: The taxpayer is personally liable for the debt

recourse debt

(38.15) Abandoned Property: The taxpayer is not personally reliable for the debt

nonrecourse debt

(38.15) Abandoned Property: If the abandoned property secures recourse debt and the debt is cancelled, the taxpayer will realize ___ income equal to the cancelled debt, unless the cancellation is intended as a gift or the debt is ___.

- ordinary | - qualified principal residence debt

(38.15) Abandoned Property: If the abandoned property secures recourse debt, the taxpayer does not recognize gain or loss until ___.

the foreclosure is completed

(38.15) Abandoned Property: If the abandoned property is ___ property, no loss deduction is available.

personal use

(38.15) Abandoned Property: If the abandoned property is personal use property, no ___ is available.

loss deduction

(38.15) Abandoned Property: Abandonment of business or investment property securing nonrecourse debt is treated as ___. A gain will be realized to the extent that the debt exceeds ___.

- a sale or exchange of the property | - the taxpayer's AB in the property

(38.16) Like-kind exchange: Form ___ is filed for the year of the exchange and for two years after exchanges between ___.

Form 8824 | two

(38.16) Like-kind exchange: The deferral of gain is not available on?

- any property held for sale (inventory) - partnership interests - property solely for personal use - stocks , bonds, and other securities (unless it is stock of a qualified small business - Section 1244 stock)

(38.16) Like-kind exchange: The property must be held for ?

use in a trade or business or for investment

(38.16) Like-kind exchange: For intangible personal property, which does not qualify for like-kind exchange?

goodwill

(38.17) Like-kind exchange: Improved real estate may be exchanged for ___. Commercial real estate may be exchanged for __. An ownership interest can even be exchanged for a lease interest greater than __ years.

- unimproved real estate - residential real estate - 30 years

(38.17) Like-kind exchange: To qualify for like-kind treatment, the seller cannot constructively receive___ and then use it to buy another property; rather, it must be placed in a ___ until it is used to acquire replacement property.

- cash | - qualified escrow account or trust or with a qualified intermediary

(38.17) Like-kind exchange: The client has __ days to identify in writing up to __ potential replacement properties, and ___ days to actually receive the replacement property.

- 45 - 3 - 180

(38.18) Like-kind exchange: No loss or gain is recognized for Section ___ like-kind exchanges

Sec. 1031

(38.18) Like-kind exchange: The property exchanged must be held either for ___ purposes.

investment trade or business purposes

(38.18) Like-kind exchange: Non-qualifying property includes?

- stocks - bonds - business inventory - personal residences

(38.18) Taxpayer A may trade a business or investment property for a property not used by Taxpayer B for business or investment. If Taxpayer A will use the property received for the same business, the exchange qualifies as like-kind for ___.

Taxpayer A only

(38.18) Multiple properties: The realized gain is the ___ of the assets given up less the total basis of those assets.

FMV

(38.18) Multiple properties: The realized gain is recognized to the extent of any ___ (the amount by which the FMV of the assets given up is greater than the FMV of the assets received.

exchange group deficiency

(38.18) Multiple properties: ___ and other noneligible assets become part of the ___ group, where all the realized gain is recognized.

- money | - residual

(38.18) When a taxpayer gives up property that is subject to a liability and the liability is assumed by the transferee, then the taxpayer is treated as having received ___ in the transaction equal to the amount of liability being transferred.

cash

(38.19) The cash or unlike property received is referred to as ___.

boot

(38.19) What is referred to as boot?

cash or unlike property

(38.19) Basis in the new property received in a deferred exchange is?

the basis in the old property + (+boot paid or -boot received) + the gain recognized

(38.20) Boot is cash or any other property that does not qualify as ___, including any reduction in ___.

- like-kind | - mortgage debt

(38.20) When analyzing a boot question, always determine?

- the FMV of the property received - the AB of the property - any non-like-kind property received

(38.20) If the boot received is less than ___ gain, then the total boot received represents the recipient's total ___ gain.

realized | recognized

(38.20) If no boot is received, there is no ___ gain.

recognized

(38.20) When either property received by the related parties is disposed of in less than __ years from the date of the exchange, the like-kind exchange treatment is disallowed. This disqualification does not apply in the event of?

- two | - the death of either party or as a result of an involuntary conversion

(38.20) Like-kind exchange: A ___ is a related entity when the client owns (directly or indirectly) more than ___% of the stock or interest

- corporation or partnership | - 50%

(38.22) Long-term contract calculation for current year's income

Total projected revenue - Total projected costs = Estimated gross profit Estimated gross profit x (cost incurred during the current year/total projected costs to be incurred on the project) = Current year's income

(38.23) Effect of LIFO when prices are rising: Inventory value

low

(38.23) Effect of LIFO when prices are rising: Cost of goods sold

high

(38.23) Effect of LIFO when prices are rising: Taxable income

low

(38.23) Effect of LIFO when prices are rising: Earnings per share

low

(38.23) Effect of FIFO when prices are rising: Inventory value

high

(38.23) Effect of FIFO when prices are rising: Cost of goods sold

low

(38.23) Effect of FIFO when prices are rising: Taxable income

high

(38.23) Effect of FIFO when prices are rising: Earnings per share

high