R2 Notes Flashcards
(6 cards)
1
Q
De Minimis Safe Harbor Rule
A
- lets you expense assets that were purchased for under the amount of $2,500 each if you don’t have an AFS (like audited FS); if you do have the AFS, you can expense $5,000 immediately
- if the amount of the item is over the $2,500 or $5,000, you can expense nothing $0 (if the cost of the item is more than the allowable amount, the entire amount must be capitalized)
2
Q
Capitalization General Rule
A
- general rule: tangible and intangible property with a useful life of more than 1 year must be capitalized
3
Q
MACRS
A
- a personal property asset is allowed six months of depreciation in the year of acquisition and disposition, regardless of the date it is acquired or disposed
- the half year convention is built into the first and last year MACRS rates (if it is disposed before the last year, then you would manually multiple by the 6 months)
4
Q
Nondeductible losses (WRAP)
A
- “wrap them up and throw them away because they are nondeductible”
1. wash sale losses
2. related party losses
3. personal losses
5
Q
Wash sale rules
A
- when a stock or bond is sold for a loss and is repurchased within 30 days before or after the sale date (dealers in securities are excluded from wash sale rules if the loss occurs form a transaction made in the ordinary course of business).
6
Q
Basis in gifted property or assets
A
- General rule: rollover basis (donee’s basis = donor’s basis)
- Exception: if FMV of gifted property is LOWER than rollover basis, then the donee’s basis depends on the donee’s future selling price of the asset
- If the sales price is less than the donor’s cost basis but is greater than the FMV, donor’s basis = sales price
- If the sales price is less than donor’s cost basis and FMV, the donee’s basis = FMV
- If the sales price is greater than the donor’s cost basis, the donee’s basis = the donor’s cost basis
[If the future selling price is higher than the donor’s cost basis, the donee’s basis is the donor’s cost basis.
If the future selling price is lower than the fair market value of the property at the time of the gift, the donee’s basis is the fair market value of the property at the time of the gift.
If the future selling price is lower than the donor’s cost basis but higher than the fair market value of the property at the time of gift, neither gain nor loss is recognized by the donee on the sale of the property].
