Property Tax: Types of Property Flashcards
What are the 3 types of property that can be held by a taxpayer?
- Ordinary income assets
- 1231 assets
- Capital assets
What is the difference between Hot Assets and 1231 Assets?
Hot assets (ordinary income assets) are the current, “everyday” assets of a business (i.e. inventory, receivables
1231 assets are long-term (non current) assets of a business.
What are Capital Assets?
All other assets that do not fit under the definition of Hot Assets or 1231 assets (i.e. investments, personal use assets, goodwill)
Unlike Hot Assets and 1231 Assets (Current-Business vs Noncurrent-Business), Capital Assets are non-business assets
How are Ordinary Assets taxed?
Upon sale, any gains or losses are considered ordinary and taxed at ordinary rates. (There are no special rates or limitations for Hot Assets)
How are 1231 Assets taxed?
1231 Losses are treated as ordinary (which means no limitations; fully deductible)
1231 Gains are long term capital gains, taxed at special rates (offset by net capital Losses)
How are Capital Assets taxed?
STCGs and LTCGs go through a netting process to determine the tax treatment.
What are the holding periods for the following:
- Inherited Assets
- Non-business bad debt write offs
- Sales are always classified as L/T
2. Write offs are always classified as S/T
What is the Capital Assets Tax Treatment for :
Net LTCG = Gain
Net STCG = Gain
When the sum of LTCG is a gain and the sum of STCG is a gain (both fall on the same side), then they are reported separately and taxed as follows:
STCG gain: Taxed at Ordinary Rates
LTCG gain: Taxed at Special Rates (0%, 15%, 20%)
What is the Capital Assets Tax Treatment for :
Net LTCG = Loss
Net STCG = Loss
When the sum of LTCG is a loss and the sum of STCG is a loss (both fall on the same side), then they are reported separately and taxed as follows:
STCG loss (for individuals): Limited to $3,000 to be deductible against ordinary income.
*No carry back, but can be carried forward forever
STCG loss (for Corps): Loss is not deductible against ordinary income. May be carried back 3 years and then carried forward 5 years to offset net capital gains.
What is the Capital Assets Tax Treatment for :
Net LTCG = Gain
Net STCG = Loss
When the sum of LTCG is a gain and the sum of STCG is a loss (both fall on different sides), they are netted against each other to produced a single net capital gain or loss and taxed as follows:
Taxed as the character of the larger of the 2 numbers being combined.
What is the effect to the donee of gift tax paid on the appreciation on property?
Any gift tax paid by the donor increase the basis of the property for the donee
