Study Unit 10 Flashcards
(29 cards)
What is the character of gain recognized by the transferor in a related-party sale?
The transferor recognized an ordinary gain.
What is the amount of loss recognized by the transferor in a related-party sale?
Loss realized in a related-party sale is not deductible (not recognized).
What is the amount of gain or loss recognized by the transferee in a related-party sale if the transferor is not a tax-indifferent party?
Transferee subsequently sells Recognized Gain or Loss
To an unrelated party at a …
Gain > Disallowed loss Recognized gain = Realized gain - Disallowed loss
Gain < Disallowed loss Gain = 0
Loss Loss = Realized loss
What is the amount of gain or loss recognized by the transferee in a related-party sale if the transferor is a tax-indifferent party?
Transferee subsequently sells Recognized Gain or Loss
To an unrelated party at a . . .
Gain > Disallowed loss Recognized gain = Realized gain
Gain < Disallowed loss Gain = 0
Loss Loss = Realized loss
Give examples of related parties for the purposes of related-party transactions.
- Anestors, descendants, spouses, and siblings
- Trusts and beneficiaries of trusts
- Controlled C corporations, S corporations, and partnerships (greater than 50% direct or constructive ownership)
How is recognized gain calculated in an installment sale?
Current-year recognized gain = current-year payment received x (gross profit / contract price
NOTE: Gross profit = sale price - Adjusted basis - Selling expenses
Contract price = Sales price - Liability assumed by buyer
Give examples of transactions in which gain is excluded or deferred (nonrecognition transactions).
- Like-kind exchanges of real property
- Involuntary conversions
- Sale of principal residence
- Sale of qualified small business stock
- Installment sales
What qualified as boot with respect to Sec. 1031 like-kind exchanges?
Boot is all non qualified property transferred in an exchange transaction. Boot received includes cash, net liability relief, and other non qualified property (its FMV).
In a like-kind exchange of real property under Sec. 1031, how is recognized gain or loss calculated?
Recognized gain - Lesser of gain realized or boot received
Recognized loss = 0 (not recognized)
In a like-kind exchange of real property under Sec. 1031, how is deferred gain or loss calculated?
Deferred gain = Realized gain - Recognized gain
Deferred loss = Realized loss
In a like-kind exchange of real property under Sec. 1031, how is basis of acquired property calculated?
Basis of acquired property = AB of property given + gain recognized - loss recognized + boot given - boot received
OR
Basis of acquired property = FMV of acquired property - Deferred gain + Deferred loss
In an involuntary conversion under Sec. 1033, how is recognized gain calculated?
Recognized gain = Lesser of gain realized or reimbursement not reinvested
In an involuntary conversion under Sec. 1033, how is deferred gain calculated?
Deferred gain = Realized gain - Recognized gain
In an involuntary conversion under Sec. 1033, how is basis of the acquired property calculated?
Basis of acquired property = FMV of acquired property - Deferred gain
State the two tests to qualify for the exclusion of gain upon the sale of a principal residence.
Ownership test Taxpayer has owned the residence for an aggregate of 2 of the 5 prior years
Use test Taxpayer has used the residence for an aggregate of 2 of the 5 prior years
When does the proration of the exclusion of gain upon the sale of a principal residence apply?
The proration applies when
* The ownership test and the use test are not met, but the sale is due to a change in place of employment, health, or
Unforeseen circumstances, or
* The residence sold was not used as the principal residence of the taxpayer for part of the prior 5 years.
Define Sec. 1231 property.
Sec. 1231 property includes all real property or depreciable property
* Used in a trade or business and * Held for more than 1 year.
What is the character of gain or loss recognized on the sale of Sec. 1231 property?
Section 1231 gain is treated as long-term capital gain (taxed at a preferential rate).
Section 1231 loss is treated as ordinary loss (can be used to offset ordinary income).
Describe a Sec. 1231 gain recapture.
Section 1231 gain (one-term capital gain) in the current year is recaptured as ordinary income to the extend of total Sec. 1231 losses (ordinary losses) in the last 5 years.
Describe Sec. 1245 property.
Section 1245 property includes all depreciable personal property
* Used in a trade or business and * Held for more than 1 year.
How are (1) ordinary income and (2) Sec. 1231 gain on the sale of Sec. 1245 property calculated?
Ordinary income = Lesser of recognized gain or accumulated depreciation
Sec. 1231 gain = Recognized gain - Ordinary income recaptured
Define Sec. 1250 property.
Section 1250 property includes all depreciable real property
* Used in a trade or business and * Held for more than 1 year.
How are (1) ordinary income and (2) Sec. 1231 gain on the sale of Sec. 1250 property by a C corporation calculated?
Ordinary income = 20% x Lesser of recognized gain or accumulated depreciation
Sec. 1231 gain = Recognized gain = Ordinary income recaptured
How are (1) ordinary income, (2) 25% gain, and (3) Sec. 1231 gain on the sale of Sec. 1250 property by a non corporate taxpayer calculated?
Ordinary Income = MACRS accumulated depreciation - straight-line depreciation
25% gain = lesser of recognized gain OR Straight-Lin accumulated depreciation
Sec. 1231 gain = Recognized gain - Ordinary income - 25% gain
