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8 Cards in this Set
- Front
- Back
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Capital vs noncapital assets |
Capital: Personal automobile Furniture and fixtures Stocks and securities Personal property (M&E) and real property (land and building) not used in trade or business Interest in pship Goodwill of corp Copyrights, literary, artistic compositions that have been purchased
Noncapital: Inventory or held for sale in ordinary course of business Business used M&E, land and building (1231) Accounts and notes receivable Copyrights, literary, artistic compositions held by original artist |
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Capital gain or loss |
Amount realized - adj basis of asset sold = gain or loss
Amount realized: Cash received (boot) Assumption of debt by buyer (excess=boot) Property received at FMV Services received at FMV Amount realized is reduced by selling expenses
Adjusted basis: Purchase property basis=cost Basis for capital improvements (add to basis) Reduce basis for acc dep
Gifted property basis for gain/loss purposes GR-rollover cost/NBV Exception- Sale at greater than NBV, use donor basis to determine gain Sale at lower FMV, use lower FMV at date of gift to determine loss Sale between basis and lower FMV, no gain or loss Holding period: recipient normally assumes the donor's holding period
Inherited property basis (step up or down to FMV): GR-date of death FMV becomes basis Alternate valuation date for FMV-earlier of: 1) distribution date of asset, 2) alternate valuation date (earlier of 6 months after death or date of distribution) Holding period: property acquired is considered long-term property |
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Gains (excluded or deferred): HIDE IT
Boot=Cash or COD (excess debt assumed by buyer) is taxable
Boot paid is cash paid or debt assumed by the taxpayer |
Homeowner's exclusion: $500,000 for married joint $250,000 for single, married separately Taxpayer must own and use property for two yrs out of five yrs Excess gain is taxable
Involuntary conversions Nonrecognition of gains realized on involuntary conversions of property (destruction, theft, condemnation) on the rationale that the taxpayer's reinvestment of the involuntarily received (insurance) proceeds restores him to the position he held prior to conversion Gain is recognized when the proceeds exceed the cost to replace property. Basis of replacement property is its cost less the gain NOT recognized. Losses are recognized Formula: Insurance proceeds Less adj basis of old property =realized gain Less gain recognized =Gain not recognized
Cost of new property Less gain not recognized (above) =basis of new property
Divorce property settlement
Exchange of like-kind business/investment assets (tangible): Nonrecognition treatment for "like-kind" exchange of property used in trade or business or held for investment (except inventory, stock, securities, pship interests, real property in diff countries) Gain when boot received (boot and non-like-kind items). Recognized gain is the lower of the realized gain or boot received. Gain/loss realized on exchange: Amount realized=FMV of new property received + FMV of boot received - FMV of boot paid Adjusted basis=OG cost - Dep Basis rules- Basis in like-kind property received when boot is received=FMV of property received - deferred gain + deferred loss OR Adj basis in old property + Gain recognized - boot received + boot paid
Installment sale: Recognize when cash is received Reportable installment sale gain/income- Gross profit=sale - COGS Gross profit percentage=GP/sales Earned revenue (taxable income)=cash collections x GP percentage
Treasury and capital stock transactions (by corp): Sales of stock Repurchase of stock Reissue of stock |
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Losses: "WRaP" up these losses because they are nondeductible |
Wash sale loss: when a security (stock or bond) is sold for a loss and is repurchased within 30 days before or after the sale date
Related party transactions: entities that are more than 50% owned by individuals, corps, trusts, pships Capital losses disallowed Basis rules same as gift tax rules Holding period starts with new owner's period of ownership
Personal loss: no deduction for the loss of a nonbusiness disposal or loss
-operating loss- offset income, yes; 2/20 -individual capital loss- $3000 offset income, carryback no, carry forward forever -corp capital loss-no offset income, carryback 3, carryforward 5 |
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Depreciation |
M&E: Half-yr convention Mid-quarter convention (over 40% in Q4)
Real estate: Mid-month convention (one half month is taken when placed in service and one half month when disposed of) Residential rental property- 27.5 year straight line Nonresidential real property- 39 year straight line
Expense deduction in lieu of dep: Limit is $500,000 for new/used M&E SUVs - section 179 - $25,000 expense limit |
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Depletion |
Cost depletion (GAAP): remaining basis is divided by remaining number of units to arrive at unit depletion rate Deduction for depletion is the depletion rate multiplied by number of units sold
Percentage depletion (tax): preference for AMT Deduction is limited to 50% of taxable income (excluding depletion) from the well or mine |
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Amortization |
Intangibles: Tax--> 15 year straight line GAAP--> impairment test/not amortized |
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Section 1231 (business used assets) |
Long-term capital gain treatment ( tax rates of 0, 15, 20)
Ordinary loss treatment--> fully deductible against ordinary income
Recapture infrequently tested but just in case: Loss=ordinary loss Ordinary income=gain to the extent of acc dep Section 1231 (capital) gain=Gina for sale price in excess of OG cost |
