Property Taxes (R2)

Question 1

section 179

Answer 1

-non residental only; not residental
-max deduction: 1,220,000 in a year
-cannot use section 179 to make a loss, or if you already have a NOL - so limited to taxable income, if it is less than the equipment bought
-does not apply to land
-if equipment is over $3,050,000 then dollar for dollar phase out, so difference between this amount and amount of equipment is subtracted from the max deduction to equal amount you can 179 this year *pay attention it does not create a loss

Question 2

using section 179 for qualified improvements - called “qualified improvement property”

Answer 2

for interior of nonresidental property and must be after building was placed into service - so can fully deduct alarm system being added

Question 3

how much income to record for inherited property or stock

Answer 3

there is no income tax on the value of something inherited - gain would be the difference between selling price and basis

Question 4

how are losses on personal assets treated

Answer 4

they are not deductible

Question 5

deminis safe harbour rule

Answer 5

allows to deduct up to $5,000 per item - can be expensed and deducted

Question 6

when personal property is being moved to business property, what is the tax basis for depreciation

Answer 6

the FMV at date of conversion

Question 7

when personal property is being moved to business property, what is the depreciation basis of property

Answer 7

lesser of: (1) the original cost basis, as adjusted for any improvements to the property; or (2) the FMV of the property on the date of conversion.

Question 8

personal property convention

Answer 8

half year * unless 40% was placed into service in last quarter of year then mid quater

Question 9

real property (non res or res buildings)

Answer 9

always use mid month

Question 10

real property

Answer 10

land and all items that are permanently attached to it - buildings, paving etc

Question 11

personal property

Answer 11

all property not classified as real property (machinery, equipment, trucks, cars)

Question 12

stock dividend calculation

Answer 12

amount of shares x 1.1 for 10% dividend

Question 13

capital assets

Answer 13

create capital gains/losses and include: assets that are held or used for investment or personal use(personal car, home)

Question 14

noncapital assets

Answer 14

typically taxed as ordinary income or loss - include assets that are held for sale to customers (ie inventory), AR from sales, or items used in taxpayers trade or business (real property or personal property)

Question 15

MACRS 3 year

Answer 15

special tools and certain racehorses

Question 16

MACRS 5 year

Answer 16

automobiles, light trucks, computers and copiers

Question 17

MACRS 7 year

Answer 17

furniture and fixtures, machinery and other equipment

Question 18

MACRS 10 year

Answer 18

boat and other transportation equipment

Question 19

MACRS 15 year

Answer 19

qualified improvements

Question 20

MACRS 20 year

Answer 20

certain farm buildings and municipal sewers

Question 21

what to do with salvage value with MACRS

Answer 21

ignore salvage value

Question 22

rules for calculating MACRS half year convention

Answer 22

year 1 = amount x %
year 2 = amount x %
if sold before year end, then do amount x % x 50%
*because half year takes half in first year and half in second year, but already reflected in first year in percentages tables

Question 23

mid quarter convention

Answer 23

only used when more than 40% of personal property is placed in service in the last quarter of the year - if it is disposed of early, the full year macrs rate must be multiplied by mid quarter ratio

Question 24

percentages to calculate if disposed of early

Answer 24

Qt 1: 12.5%
Qt 2: 25% + 12.5%
Qt 3: 50% + 12.5%
Qt 4: 75% + 12.5%

Question 25

depreciation for residential property (apartment buildings, rental homes etc)

Answer 25

27.5 years straight line depreciation -

Question 26

depreciation for nonresidential property (office buildings, warehouses etc)

Answer 26

39 year straight line depreciation

Question 27

donees tax basis in gifted property

Answer 27

three scenarios based on future selling price

Question 28

depreciation basis for gifted property

Answer 28

lesser of: donors adjusted basis at date of gift FMV at date of gift

Question 29

holding period of the gifted property

Answer 29

-long term property sold for a gain: use capital gain rates -short term property sold for a gain: use ordinary income rate -GR: recipient of gift gets to absorb the donors holding period

Question 30

who pays gift tax

Answer 30

never the done (receiving the gift) but sometimes the donor if over

Question 31

general rule of basis for gifts

Answer 31

donors basis is rolled over to the donee: then once gift is sold, the taxpayer recognizes a gain or loss for sales price - rollover basis received

Question 32

exception to the general rule for gifts

Answer 32

when the FMV at date of gift is < the donors NBV : the basis depends on the future sales price *three possible scenarios

Question 33

donees tax basis in gifted property when sales price > NBV

Answer 33

basis: use NBV as the basis and recognize the gain holding period: use the donors holding period

Question 34

donees tax basis in gifted property when sales price < FMV

Answer 34

basis: use FMV as basis and loss is recognized holding period: begins at the date of the gift and no rollover holding period occurs

Question 35

donees tax basis in the gifted property when the sales price is in between NBV and FMV

Answer 35

basis: sales price is the basis, so no gain or loss is recognized holding period: holding period is not relevant

Question 36

basis rule for inherited property basis

Answer 36

fair market value at the date of death *ignore basis given and it is ok if given to wife in scenario

Question 37

holding period for inherited property

Answer 37

always considered to be long term property

Question 38

tax basis for depreciation for converting property from personal use to business use

Answer 38

lesser of: -original cost basis (adjusted for any improvements) -FMV of property on date of conversion

Question 39

tax basis for determining a gain

Answer 39

adjusted basis of the property at the date of sale

Question 40

tax basis for determining a deductible loss

Answer 40

take lesser of: adjusted cost basis or FMV of property (both at time of conversion to business use) then reduce by depreciation taken after conversion

Question 41

capital loss deduction and carryover rules for individuals

Answer 41

$3,000 max deduction or carry forward indef. and no carryback

Question 42

what are nondeductible losses (3 types)

Answer 42

wash sales, related party transactions, and personal losses

Question 43

wash sale

Answer 43

when a security (stock or bond) is sold for a loss and is repurchased within 30 days - only applies to losses not gains

Question 44

basis of new shares you purchased when a wash sale

Answer 44

purchase price + disallowed loss on wash sale

Question 45

who can use section 179 deduction

Answer 45

personal property placed into service and real property improvements

Question 46

bonus depreciation

Answer 46

comes after section 179; use allowable bonus depreciation percentage: 60% in 2024

Question 47

amortization rule

Answer 47

intangible assets are amortized using straight line method with a full month conversion - over 180 months or 15 years

Question 48

organizational and start up costs

Answer 48

-$ for $ phase out if over 50,000 -immediately expense $5,000 and amortize rest of 180 months x amounts for the year + the $5,000 already expenses equals total deduction for that years start up costs or organizational costs

Question 49

when dealing with wash sales, what is the tax basis of stock sold in current year

Answer 49

purchase price x amount of shares

Question 50

how do C corps recognize capital losses

Answer 50

only to the extent of capital gains - can go back three years and forward five years to offset other net capital gains