Flashcards in Part VII: Property Taxation Issues Deck (40):
For tax purposes, business assets can be divided into 3 categories:
1. ordinary assets
2. Section 1231 assets
3. capital assets
inv., A/R, N/R
Section 1231 assets
depreciable property used in a trade or business that have been owned for more than a year.
1. assets other than what is listed as ordinary assets or 1231 assets.
2. also includes property held for inv. use or personal use.
3. keyword: "investment."
Realized gains must be computed when...
property is sold or disposed of.
realized gain formula
- adjusted basis
= realized G/L
+ FV of property/services received
+ liabilities assumed by the buyer
- selling expenses
= amount realized
cost of property, which includes any capital improvements
1. When property is received as a gift, there is a gain basis, and a loss basis.
2. This is to make the taxable gain as big as possible, and any loss to be as small of a tax benefit as possible, since it was a gift.
gain basis of a gift
adjusted basis the donor had in the property
1. Also the depr. basis.
holding period (gain basis)
includes the donor's holding period if the gain basis will be used to compute a gain
loss basis of a gift
lower of the FMV at the date of gift, or the adjusted basis of the donor
holding period (loss basis)
begins on the date of the gift if the loss basis is used to compute a loss
When is a gain recognized on a gift of property?
If the property is later sold for more than the gain basis.
When is a loss recognized on a gift of property?
If the property is later sold for less than the loss basis.
If the property is sold for an amount btwn. the gain and loss basis...
there is no G/L recognized.
basis in property received from an inheritance
1. FMV at date of death
2. If alternate valuation date is used, FMV at 6 mos. after date of death.
1. for assets held 1+ yrs.
2. All LTCGs and LTCLs are netted together.
1. for assets held 1 yr or less.
2. All STCGs and STCLs are netted together.
If the net STCG/L and net LTCG/L are negative...
the resulting net cap. loss can be deducted from ordinary income up to $3,000.
If the net STCG/L and net LTCG/L are positive...
it is taxed as ordinary income.
net capital loss carryback/carryforward
1. Losses carried back 3 yrs. and carried forward 5 yrs.
2. Cany only be used to offset cap. gain NI but cannot create a NOL.
recapture rule for 1231 assets
When 1231 assets are sold, depr. on asset is recaptured and recognized as ordinary income.
2 types of 1231 recapture
1. Section 1245.
2. Section 1250.
takes on gains up to the amount of acc. depr.
1. If you sell an asset for 200 that you bought for 150, and there is 50 A/D, so the basis is 100, then the 50 A/D becomes ordinary income. The remaining 50 A/D is a 1231.
recapture of acc. accelerated depr. on building in excess of straight-line depr. as ordinary income.
netting 1231 G/L
1. To the extent 1231 G > 1231 L, net gain is a LTCG.
2. If 1231 G
1. 1231 G must be offset by net 1231 L going back 5 yrs. that have not been previously recaptured.
2. Any G that can be absorbed by previous 1231 L are treated as ordinary income.
Depreciation acts as...
As such, there are rules as to what can be depreciated.
What kind of property can be depreciated?
1. Business property.
2. Income-producing property.
personal, movable property
real, fixed property
Under MACRS, how is personalty depreciated?
200% or 150% declining balance
Under MACRS, how is realty depreciated?
business use test
1. Property is used for business 50+% of the time.
2. Must be passed to use regular MACRS.
Section 179 election
1. allows a taxpayer to expense a certain amount of bus. property
2. Amount expensed cannot exceed bus. income.
like kind exchange rule
1. When like kind property is exchanged, not G/L unless boot is received.
2. All realty is considered like kind for the purpose of this rule.
1. Cash or other nonqualifying property added to an exchange or other transaction in order to make the value of the traded goods equal.
2. Debt relief is also boot.
3. When boot is received in an exchange, the recognized gain is the amount of boot received.
A taxpayer an exclude up to ________ when s/he sells his/her principal residence.
$250,000 ($500,000 MFJ)