Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
16 Cards in this Set
- Front
- Back
|
Basis
|
Generally, the original price paid to acquire the property increased by certain adjustments (expenditures for improvements) and decreased by certain tax benefits (depreciation during term of ownership)
|
|
|
Functions of Basis
|
(1) Measure the gain or loss when property is sold, exchanged, or transferred in a taxable transaction
(2) Serve as a departure point for depreciation |
|
|
Capital Assets
|
Asset of a permanent or fixed nature, or employed in carrying on a business or trade
Property held by the taxpayer with specified exceptions (such as inventory or property held primarily to be sold to customers) |
|
|
Tax Rule for Capital Assets
|
Capital assets sold receive capital gains tax treatment and the seller is taxed only to the extent of the gain. Gain or loss on other property is taxable as ordinary income.
|
|
|
Holding Period
|
Determined with regard to whether the taxpayer has long or short term capital gains/losses. Property held at death and in the estate is treated for income tax purposes as long term capital gains property to the beneficiary, regardless of the decedent's holding period
|
|
|
Basis of Property Transferred at Death
|
General rule: when property is acquired from a decedent, it acquires a new basis equal to the value of the property either on the date of death or on the alternate valuation date (6 months later) if qualified and elected
|
|
|
Basis of Property Subject to Powers of Appointment
|
If passed at death, property is treated as property transferred by a decedent at death and is included in the gross estate (for general powers); property subject to power may be stepped up or down
If passed during life, property has a carryover basis |
|
|
Basis of Property Subject to Retained Powers
|
The stepped up basis rules apply to these properties transferred during lifetime that were brought back into the gross estate for valuation purposes due to the retained powers
|
|
|
Basis of JTWROS
|
Just as with other property, generally all property included in the gross estate receives a stepped up basis
Unmarried: Decedent's interest is stepped up Married: The property receives a stepped-up basis for the value of one-half of the property |
|
|
Exceptions to General Stepped-Up Basis Rule
|
(1) IRD
(2) Community Property (3) Certain Property Acquired by Gift Within One Year of Death (4) Receipt of Property in Kind |
|
|
Basis of IRDs
|
Income is includible at full value for estate tax purposes; also taxed as ordinary income to beneficiary (after deducting for the additional estate tax paid)
|
|
|
Basis of Receipt of Property in Kind
|
If beneficiary receives property in substitution for a cash bequest, the basis is the amount of cash bequest the property transferred satisfies
|
|
|
Basis of Community Property
|
The surviving spouse receives a step up in basis equal to the full value of the property (in common law states, only the value included in the estate is stepped up)
|
|
|
Basis of Property Acquired by Gift within One Year of Death
|
Stepped up basis does not apply if the property is acquired by the decedent by gift within one year before death and upon death reverts directly or indirectly back to the original donor or donor's spouse
|
|
|
General Rule for Basis for Gifts Transferred During Life
|
For gifts made during life, the donee acquires the donor's basis increased by any gift tax paid on the net appreciation of the gift at the time of the gift
|
|
|
Basis for Gifted Property during Life when FMV is Less than the Adjusted Basis
|
For losses: the donee's basis is the lesser of the donor's basis or the FMV at the time of gift
For gains: the donee's basis is the greater of the donor's basis or the FMV at the time of the gift |
