Property Taxation

Question 1

Section 1231

Answer 1

Depreciation Recapture

used against capital losses

Question 2

Ways to Offset Property Sale

Losses (WRAP)

Answer 2

W - wash sale losses
R - related party transactions
A - and
P - personal losses

Question 3

Property Losses

Wash Sale Losses

Answer 3

When security is sold for a loss and repurchased within 30 days before or after sale date

Basis = purchase price of new security + disallowed loss

Question 4

Property Losses

Related Party Transactions

Answer 4

Not considered “arms-length” and therefore disallowed

Question 5

Property Losses

Personal Loss

Answer 5

Nothing allowed

Itemized deduction may be allowed in category of causality and theft

Question 6

1040

Schedule D

Answer 6

Capital Gains and Losses

Question 7

Basis for Purchased Property

Answer 7

Cost + Capital Improvements

holding period = purchase date`

Question 8

Basis for Gifted Property

Answer 8

NBV
“Donors Roll-Over Cost”

depreciation lower of FMV and NBV

Question 9

Gifted Property Basis Exemption

NBV value unless…

Answer 9

FMV < Rollover Basis
depends on future sale of asset

1 - if sold > NBV = use NBV for gain
2 - if sold < NBV = use FMV for loss
3 - if sold between NBV and FMV = no gain/loss

Question 10

Basis of Inherited Property

Answer 10

Step up (down) to FMV
Date of Death FMV

exception = alternate valuation date
earlier of:
1 - date distributed
2 - max 6 months after death

Question 11

Property De Minimus Rule

Answer 11

Capitalization policy must be written for non-tax purposes:

• prop. under $_ will be expensed
• prop. useful < 12 months will be expensed

Max allowed for tax is $5k if written, $2.5k if not

Question 12

MACRS

Answer 12

Modified Accelerated Cost Recovery System

Used for majority of federal tax depreciation expense

Question 13

MACRS Rules

Answer 13

machinery and equipment

Salvage value ignored

Half year convention = in year you buy/sell it
Mid quarter convention = if bottom heavy w/ 40% in Q4

Question 14

MACRS

Real Property Rules

Answer 14

• Salvage value ignored
• No land cost / building only
• Residential property = 27.5 SL depreciation
• Nonresidential property = 39 SL depreciation

Mid month convention = 1/2 month when placed in service

Question 15

Property Gain

Treasury and Capital Stock Transactions

Answer 15

Never realize acquisition of own stock

Question 16

Property Gain

Installment Sale

Answer 16

Taxed when cash payments are received

Question 17

Property Gain

Exchange of like-kind (business) property

Answer 17

Not excludable for “things on paper”: (remote) inventory, stock, securities, partnership interests, goodwill, property in other countries

Replacement ID’ed within 45 days

Received within 180 days or tax return filed

Question 18

Exchange of like-kind (business) property

Real Property

Answer 18

Does not have to be the same “general” use

Question 19

Exchange of like-kind (business) property

Personal Property

Answer 19

Must be same “general” use

Question 20

Property Gain

Divorce Property Settlement (basis)

Answer 20

Basis = NBV = nontaxable

Question 21

Property Gain

Involuntary Conversions

Answer 21

Must receive insurance proceeds into similar property

Excess = taxable loot

Reinvest within 2 years / 3 years for business property

Question 22

Property Gain

Homeowners Exclusion

Answer 22

Principle residence for 2+ years during 5 prior to sale

$500k to married couples
$250k for singles

non-qualified use for attempt to sell or rental property

Question 23

Ways to Offset Property Sale Gain

Answer 23

HIDEIT

H - homeowners exclusion
I - involuntary conversions
D - divorce settlements
E - exchange of like-kind (business) property
I - installment sale
T - treasury capital and stock

Question 24

Calculating Gain / Loss at Disposition

Answer 24

Amount Realized
- Adjusted Basis of asset sold
= Gain or Loss

Question 25

Section 1231 Gains

Answer 25

Determined by either 1245 or 1250

Question 26

1245 Gains

Answer 26

Machinery and Equipment (over 12 months) lesser of - gain recognized or all acc. dep. is recaptured as ordinary income any remaining gain is 1231 gain

Question 27

1250 Gains

Answer 27

Real properties (over 12 months) recaptures only dep. over SL

Question 28

1231 Loss

Answer 28

Treated as ordinary loss (not capital)

Question 29

MACRS Personal Property

Answer 29

Anything other than Real Property 3/5/7/10 yr = depreciate using 200% declining balance 15/20 yr = depreciate using 150% declining balance

Question 30

MACRS Conventions

Answer 30

Machinery and Equipment - half-year - mid-quarter Real Estate - mid-month

Question 31

After-Tax Cash Flows Formula

Answer 31

Earnings after tax + Amortization + Depletion + Depreciation = After-Tax Cash Flow

Question 32

Amount REALIZED

Answer 32

``` Prop received (FV) + cash/boot received - cash/boot paid +/- NET reduction of debt - basis in existing prop ```

Question 33

Amount RECOGNIZED

Answer 33

Lesser of - amount realized - boot received

Question 34

Amount for BASIS in new prop

Answer 34

Basis of existing + boot paid - boot received + gain recognized