R3 - Property Taxation Flashcards
Basis per share:
Taxpayer has to spread their basis over total amount of shares when a stock-split happens. Original basis doesn’t change only “per share basis does”
Example:
Original: 100 shares for $10,000 = $100 basis per share
Stock split: 200 shares for 10,000 = $50 basis per share.
Sold 100 shares = $5,000 basis of sold shares
Basis per share: LT capital gain - CALCULATION
Amount realized
(selling price x #shares
sold)
-Adjusted basis
(if there was a stock split
/ new total shares)
=LT Capital gain
Property Acquired as a Gift:
Typically retains the rollover cost basis of the donor. Increased by any gift-tax paid for the appreciation of the gift.
Unless:
At the time of the gift, the FMV is < Basis from the donor.
Then:
Basis of donee in gift depends on the future selling price of the asset.
- > Donor's basis (Basis to
donee is same as the
donor's)
- Between donor's basis
and the lower FMV at the
date of the gift (no
gain/loss)
- < FMV at date of gift
(lesser of the donor's
basis or FV of property
at date of gift)
Inherited Property:
No income tax on this.
Inherited Property: ST vs LT gains
Unless the executor elects the “alternative valuation date” the basis in the property inherited is the FMV at the date of death.
Property acquired like this, is always considered LT property/gains if sold
De-Minimis Rule:
Company must have a written accounting policy to expense items up to a certain amount and economic life. Must also have an applicable FS at the end of the year.
If both of these apply:
-Company can deduct items
costing up to $5,000 each
If no FS: -Company can deduct up to items up to $2,500 (if items are worth more than this, than they cannot deduct)
Qualifying Small Taxpayer: Safe Harbor Rule
Average annual gross receipts from past 3 years are < $10,000,000.
Building and property qualifies if the un-adjusted basis is < $1,000,000.
If both of these apply:
- Taxpayer can deduct improvements to building that don’t exceed $10,000 or 2% of un-adjusted basis of building.
- If taxpayer doesn’t qualify as “small taxpayer” then they can’t deduct repairs and maintenance to building
Basis in property bought:
Any amount paid in cash and debt assumed to purchase the land.
Like-kind Exchange: CALCULATION
Adjusted basis of old property given up
- Boot received (if lesser
than Gain realized)
+ Gain recognized
+Boot paid (not received) or
Liabilities assumed
= Basis in new property
OR
FMV of new property
+ Deferred loss (adjust basis
of old property - (FMV of
new property + Boot
received))
= Basis in new property
Wash sale:
Taxpayer sells stock at a loss and invests in substantially identical stock within 30 days before/after the sale.
-This loss is not deductible.
Like-Kind Exchange: Treatment
Exceptions:
- Inventory
- Stock
- Securities
- Partnership interests
- Real property (from
different countries)
These are taxable
Means: “Same type of investment”
Example of Like-kind exchange that is non-taxable:
- Office building for vacant
lot (realty for realty used in
business)
Like-Kind Exchange: NOTE
Assets exchanged but be of the same “asset class” to qualify for “non-recognition” (not taxable)
Like-Kind Exchange: Gains/losses Recognized
Recognize the lesser of the “Gain realized and boot received”
“Boot”: NOTE
Doesn’t have to be cash. Just anything given “in addition” to the asset acquired in an exchange.
Like-Kind Exchange: NOTE
Losses are NEVER recognized
Selling property: Calculation
As long as the taxpayer has lived in his home 2 or more out of the 5 years before he sells his home, he can deduct up to $250,000 of the gain (and recognize the rest)
SP -Basis =Realized Gain -$250,000 excluded =Recognized Gain
Like-kind Exchange: Always remeber
Gain recognize =
Lesser of:
- Net boot received (liabilities
assumed/given to other
party or cash/assets
received) - Gain realized
