Property Transactions Flashcards
TAX BASIS IN A PROPERTY Calculation
Cost of property
+Purchase expenses
+Debt assumed
+Back taxes and interest paid
What is the treatment on back taxes and interest paid on property transactions?
Back taxes and interest paid by taxpayer are not deductible for assessments on time taxpayer did not own the property - they only add to property’s basis.
What is the tax basis for gifted property?
USE BASIS, NOT FMV
What is the tax basis for gifted property sold at a gain?
Use donor’s basis
What is the tax basis for gifted property sold at a loss?
Use lesser of donor’s basis or FMV at time of distribution
What is the tax basis for gifted property sold in-between donor’s basis and FMV?
No Gain or Loss
What is the tax treatment of ESTATE PROPERTY INHERITED?
USE FMV, NOT BASIS
Which date should be used for estate property inherited?
Use FMV at death or Alternate Valuation Date (6 mo. later)
o If Alt. date is chosen but sold before 6 mo. window, use FMV at date sold
How is Property inherited is recognized?
LTCG property regardless of how long you hold it after receipt
What is the STOCK DIVIDEND HOLDING PERIOD?
Holding period of new stock received from a dividend takes on the holding period of the original stock
SALE OF AN ASSET GAIN CALCULATION
Selling Price (cash received + liability relieved)
Gain
What is a LIKE-KIND EXCHANGE?
- Real for real or personal for personal business property only
- US property only
What is INVOLUNTARY CONVERSION?
- Occurs when you receive money for a property involuntarily converted
- There is no gain if you reinvest the proceeds completely
- If not…
Example:
Received $24,000 Reinvested $21,000
Basis Not Reinvested $3,000
Realized Gain $4,000
Realized Gain $4,000 vs. Not Reinvested $3,000
Take the lesser… Recognized Gain = $3,000
SALE ON HOME (PERSONAL RESIDENCE)
- Must live there 2 out of 5 years
2. Loss on sale of home is NOT deductible
WASH SALE
- 30-Day rule applies
- Disallowed loss adds to basis of new stock
- New stock takes on date of acquisition of old stock
What are SALES BETWEEN RELATED PARTIES?
- Ancestors
- Brother/Sister
- Spouse
- Descendants
- Corporation or partnership where you’re a 50% shareholder
- Seller cannot take a loss on a sale, but the gain is always recognized
- Related party gets to use the disallowed loss when sold
o Never below zero - i.e. a net loss is not allowed
o Related party’s holding period begins when they acquire property
8.In-Laws are not related parties
What are the effects of CAPITAL LOSSES (CORPORATIONS)?
- Capital losses only offset capital gains
- Carryback 3 Years
o If you elect to not carryback when able, you lose the option in the future - Carryforward 5 Years - only as a STCL
How is CAPITAL GAIN/LOSS PROPERTY CLASSIFICATION?
- Inventory is NOT a capital asset
- Business property is NOT a capital asset
- A/R is NOT a capital asset
- Covenant not to compete is NOT a capital asset (and your basis is zero)
- Goodwill (internally generated) IS a capital asset
What are CAPITAL GAINS AND LOSSES (NON-CORPORATIONS)?
- Net all STCG and STCL
- Net all LTCG and LTCL
Example:
Net STCG $10,000
Net LTCL
Net LTCL
Deduct $3,000
LTCL Carryforward
Note: a Carryforward always maintains its character
CAPITAL LOSSES FOR INDIVIDUALS?
- Individuals can offset $3,000 of ordinary income with a $3,000 capital loss
- Unused capital losses don’t get deducted on decedent’s final return, but unused passive losses do
- No Carryback for Individuals allowed
Treatment of PERSONAL PROPERTY USED IN BUSINESS?
Any G/L on business property held
What are 1231 PROPERTY?
Real or Personal Property held more than a year o Inventory is never 1231 Property Casualty Losses on 1231 Property o Net the losses Net Loss = Ordinary Loss Net Gain = Combine with other 1231 Gains
What are 1231 Net Loss?
If 1231 Losses > Gains, treat as Ordinary Loss
What are 1231 Net Gain?
If 1231 Gains > Losses, treat as LTCG
