R3 Flashcards
(33 cards)
Gain/Loss Realized
Amount realized (FMV of real property received)
–
Adjusted basis of real property given up (Basis - Accumulated depreciation)
–
Boot paid(liability assumed)
Gain/Loss Recognized
The realized gain is recognized up to boot received in cases if Realized gain is more than boot received for like- kind exchanges
Lesser of
Boot received ( Cash and Debt relief)
or
Realised Gain
If there is a Loss - Losses are never recognized for like-kind exchange.
Gain Deferred
Gain Realized - Gain Recognized
Bais of new property
FMV of property received
(-) Deferred Gain
+ Deferred Loss
Inherited Property - Taxpayer’s Basis
FMV of the property at the date of death
(or)
If elected alternate valuation date for distribution , then:-
EARLIER of
six months after date of death
or
date distributed if before six months.
Inherited Property - Income Tax
There is no income tax on the value of inherited property.
Gifted Property - BASIS
Donor’s Basis = Donee’s Basis—– Applicable when FMV > Basis.
Therefore , sale price - Basis
Exception ==== FMV<Basis
Long term Capital Gain/Loss
A capital asset which is sold or exchanged more than one year after the date of acquisition will generate either
- a long-term capital gain ===if the capital asset is sold at a price greater than acquisition cost
- long-term capital loss ===if the capital asset is sold at a price less than the acquisition cost
Gain recognized on Foreclosure Property
O/S Debt Balance - Borrower’s Basis
Foreclosure of property with a nonrecourse, secured loan is treated as a sale of the property.
It is not cancellation of debt (COD) income because the debtor is not personally liable for the debt.
The amount realized is the amount of the debt immediately prior to the foreclosure
Taxpayer - Home owner - Selling Property
Realized Gain ==SP - Basis
Recognized Gain === Realized Gain
-
Excluded Amount of
250,000 if single
- Should have lived in his home for two years or more out of the five years preceding his sale of his residence,
- single taxpayer he may exclude up to $250,000 of gain on its sale.
Basis to spouse on Divorce property settlement
Recipient Spouse Property == Former spouse Basis
In a divorce property settlement, the recipient spouse’s basis of the investment property is the carryover basis(basis in the hands of the former spouse).
Selling stock to related party on loss
Stock sold to the taxpayer’s brother, it is a related party loss and the taxpayer is not allowed to deduct any of the loss.
Sec 179 election expense
Under the Section 179 election to expense certain depreciable business assets, the taxpayer may expense the cost of qualifying depreciable property up to the annual limitation amount, which is $1,160,000 in 2023.
Half- year convention
The half-year convention provides that one-half of the first year’s depreciation is allowed in the year in which the property is placed in service, regardless of when the property is placed in service during the year, and a half-year’s depreciation allowed for the year in which the property is disposed of.
This assumes that more than 40 percent of the assets were
not placed in service during the last quarter of the year. If this were the case, the mid-quarter convention would apply
Mid-quarter
Data Corp., a calendar year corporation, purchased and placed into service office equipment during November Year 1. No other equipment was placed into service during Year 1. Under the general MACRS depreciation system, what convention must Data use?
When a taxpayer places more than 40 percent of its property (other than certain qualifying real property) into service in the last quarter of the taxable year, the corporation must use the mid-quarter convention for MACRS depreciation purposes. With this method the acquisitions are segregated by quarter and treated as if placed in service in the middle of each respective quarter.
Four years ago, a self-employed taxpayer purchased office furniture for $30,000. During the current tax year, the taxpayer sold the furniture for $37,000. At the time of the sale,the taxpayer’s depreciation deductions totaled $20,700. What part of the gain is taxed as long-term capital gain?
Realized Gain of 27,700 is utilised as Ordinary income 20,700 and LTCG 7000 here
- Ordinary income =Recaptured
Depreciation deduction
= 20,700 - Remaining is LTCG = 7000
Basis = Purchase price - Accumulated Dep
30,000-20,700 == 9300
Sales Price == 37,000
Realized Gain
when property === Sale proceeds - Basis
is sold = 37,000- 9300
= 27,700
Under Section 1245 (office furniture qualifies as Section 1245 property because it is not real property), the total depreciation deducted will be recaptured as ordinary income, and the remainder (any amount in excess of the original cost) will be Section 1231 (taxed as a long-term capital) gain.
Amortization
The following must be must be amortized on a straight-line basis over a 15-year period (180 months) beginning with the month of acquisition.
- Acquisitions of goodwill,
- covenants not-to-compete,
3.Franchises, - trademarks, and
- trade names
Capital Losses
Capital Losses offset capital gains. If a Corporation has net capital gains, they are taxed at ordinary corporate income tax rates.
Net-Capital Loss Limitation
$3,000.
A deduction for a net capital loss is limited to the
lesser of
1. the net capital loss or
2. $3,000
Netting Short-term Capital Gains and Losses
Any short-term capital losses including any STCL carryovers are
1. First offset against any short-term gains taxable at Ordinary Income rates.
2.STCL offset LTCG from 28% rate group
3. STCL offset LTCG from 25% group (Unrecaptured Sec 1250 gains)
4. STCL offset LTCG from 15% group
Netting Long-term Capital Gains and Losses
- If there are any LTCL including any LTCL Carryovers from 28% rate group. they are first offset against
a). Any net gains from 25% rate group
b). Any net gains from 15% rate group - If there are any LTCL Including any LTCL Carryovers from 15% rate group, they are offset first against
a) Any net gains from 28% rate group
b) Any net gains from 25% rate group
Exceptions to Capital assets
1.Inventory held for sale to customers in the ordinary course of business.
2.Depreciable property and real estate used in business.
3.Accounts and notes receivable arising from sales or services in the taxpayer’s business.
4.Copyrights, literary, musical, or artistic compositions held by the original artist.(
Exception:
Sales of musical compositions held by the original artist receive capital gain treatment.)
5.Treasury stock.
If FMV of the property is lower than the cost basis then there are
Exceptions
- SP higher than Basis
Donee’s Basis == Donor’s Basis - SP is lower than FMV
Donee’s Basis == FMV - SP is between the FMV and Basis (Fmv is lower than SP and SP lesser than Basis)
NO GAIN or NON LOSS
On August 1, Year 1, Graham purchased and placed into service an office building costing $264,000, including $30,000 for the land. What was Graham’s MACRS deduction for the office building in Year 1?
- Only the building is depreciable, so the depreciable portion is$264,000 - $30,000 land, for a net of $234,000.
- The MACRS rules provide a 39-year life, straight-line depreciation, and a “mid-month” acquisition convention that treats the property as acquired in the middle of the month, regardless of the actual date of acquisition.
- Therefore, the August 1, Year 1, service date provides a half-month’s depreciation for August, plus a full month for September through December, for a total of 4.5 months for Year 1.
($234,000/39 years) × (4.5 months/12 months) = $2,250.
