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Flashcards in Property Transactions Deck (20)
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1
Q
What is the basic calculation for basis in property?
A
Cost of property + Purchase expenses + Debt assumed + Back taxes and interest paid = Basis. Note: taxes and interest related to time when a taxpayer did not own the property are not deductible - they are added to basis.
2
Q
What is the recipient or donee's basis on gifted property?
A
Sold at a gain: use donor's basis

Sold at a loss: use lesser of donor's basis or FMV at time of distribution

Sold in between donor's basis and FMV: No gain or loss
3
Q
What is the basis and holding period of inherited property?
A
FMV at date of death or alternate valuation date (6 months later)

If alternate date is elected by property is sold before 6 month window; use FMV at date of death.

Property inherited is LTCG property regardless of how long it is held by the recipient.
4
Q
What is the holding period on a stock dividend?
A
Holding period of new stock received from a dividend takes on the holding period of the original stock
5
Q
What property is eligible for like-kind exchange treatment?
A
Real for real or personal for personal business property only

US property only
6
Q
What is BOOT in a like-kind exchange?
A
Cash received + unlike property received + liability passed to other party
7
Q
In a like-kind exchange; how is it handled if a netting of mortgages results in net boot paid?
A
DO NOT subtract the boot paid amount from the cash received

Ignore the boot paid amount from the mortgage completely
8
Q
What is an involuntary conversion? When does it not result in a gain?
A
Occurs when you receive money for a property involuntarily converted

There is no gain if you reinvest the proceeds completely

If proceeds not completely reinvested; gain is LESSER of realized gain or amount not reinvested.
9
Q
What are the requirements for exclusion of gain on a primary residence? How are losses treated?
A
Must live there 2 out of 5 years

Loss on sale of home is NOT deductible
10
Q
What is a wash sale?
A
30 Day rule applies

Disallowed loss adds to basis of new stock

New stock takes on date of acquisition of old stock
11
Q
Who is considered a related party in a property transaction? How does it affect the transaction?
A
Ancestors; siblings; spouse; descendants; corporation or partnership where you're a 50% shareholder

Seller cannot take a loss on sale to a related party; but gain is always recognized.

Related party gets to use the disallowed loss when they sell.

Related party's holding period begins when they acquire the property.

In-laws are NOT related parties.
12
Q
How are capital losses taken in a corporation?
A
capital losses only offset capital gains

Carryback 3 years - if you elect NOT to carryback; you lost the option in the future

Carry forward 5 years - only as STCL
13
Q
What assets are NOT capital assets?
A
Inventory; Business interest; Accounts Receivable; Covenant not to compete

Goodwill IS a capital asset

14
Q
What are the steps in applying a capital gain or loss?
A
Net all STCG and STCL

Net all LTCG and LTCL

Add together

Deduct $3;000
15
Q
How much ordinary income can be offset by an INDIVIDUAL's capital losses?
A
$3;000 per year. Unused is carried forward and taken $3;000 each year.

No carryback is allowed.
16
Q
Which property is governed by section 1231?
A
Real or Personal Business Property held more than a year

Inventory is never 1231 Property
17
Q
How are section 1231 gains and losses handled?
A
Casualty Losses on 1231 Property - Net the losses
* Net Loss = Ordinary Loss
* Net Gain = Combine with other 1231 Gains

1231 Net Loss - If 1231 Losses exceed gains; treat as Ordinary Loss

1231 Net Gain - If 1231 Gains exceed losses; treat at LTCG

1231 Gain = LTCG

1231 Loss = Ordinary Loss
18
Q
How is section 1245 depreciation recapture handled; and when does it apply?
A
To the extent of depreciation; treat as ordinary gain
Remainder is 1231 gain; which is LTCG - There are no 1245 Losses

1231 Gain = LTCG
1245 Gain = Ordinary
Casualty Gain = LTCG

1231 Loss = Ordinary
1245 Loss = N/A
Casualty Loss = Ordinary
19
Q
What property qualifies for section 1250 treatment; and how are gains/losses handled?
A
1250 property is Real Estate that is not 1231 Property
Use 1250 for Gain only. For losses; use 1231

Individuals: Post-1986 property with a gain is 1231 LTCG

If Straight Line depreciation is used; don't use 1250 - Entire gain is 1231

Corps: Section 291 requires 20% of depreciation classified as ordinary gain
Remainder is 1231 LTCG
20
Q
When are 1231; 1245 and 1250 gains or losses always ordinary?
A
When the asset is held less than one year.