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Flashcards in Property Taxation Deck (34):
1

Section 1231

Depreciation Recapture

*used against capital losses*

2

Ways to Offset Property Sale

Losses (WRAP)

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

3

Property Losses

Wash Sale Losses

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

4

Property Losses

Related Party Transactions

Not considered "arms-length" and therefore disallowed

5

Property Losses

Personal Loss

Nothing allowed

Itemized deduction may be allowed in category of causality and theft

6

1040

Schedule D

Capital Gains and Losses

7

Basis for Purchased Property

Cost + Capital Improvements

*holding period = purchase date*`

8

Basis for Gifted Property

NBV
"Donors Roll-Over Cost"

*depreciation lower of FMV and NBV*

9

Gifted Property Basis Exemption

NBV value unless...

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

10

Basis of Inherited Property

Step up (down) to FMV
Date of Death FMV

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

11

Property De Minimus Rule

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

12

MACRS

Modified Accelerated Cost Recovery System

Used for majority of federal tax depreciation expense

13

MACRS Rules

*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

14

MACRS

Real Property Rules

- 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

15

Property Gain

Treasury and Capital Stock Transactions

Never realize acquisition of own stock

16

Property Gain

Installment Sale

Taxed when cash payments are received

17

Property Gain

Exchange of like-kind (business) property

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

18

Exchange of like-kind (business) property

Real Property

Does not have to be the same "general" use

19

Exchange of like-kind (business) property

Personal Property

Must be same "general" use

20

Property Gain

Divorce Property Settlement (basis)

Basis = NBV = nontaxable

21

Property Gain

Involuntary Conversions

Must receive insurance proceeds into similar property

Excess = taxable loot

Reinvest within 2 years / 3 years for business property

22

Property Gain

Homeowners Exclusion

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*

23

Ways to Offset Property Sale Gain

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

24

Calculating Gain / Loss at Disposition

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

25

Section 1231 Gains

Determined by either 1245 or 1250

26

1245 Gains

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

27

1250 Gains

Real properties (over 12 months)

recaptures only dep. over SL

28

1231 Loss

Treated as ordinary loss (not capital)

29

MACRS Personal Property

Anything other than Real Property

3/5/7/10 yr = depreciate using 200% declining balance
15/20 yr = depreciate using 150% declining balance

30

MACRS Conventions

Machinery and Equipment
- half-year
- mid-quarter

Real Estate
- mid-month

31

After-Tax Cash Flows Formula

Earnings after tax
+ Amortization
+ Depletion
+ Depreciation

= After-Tax Cash Flow

32

Amount REALIZED

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

33

Amount RECOGNIZED

Lesser of
- amount realized
- boot received

34

Amount for BASIS in new prop

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