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85 Cards in this Set

  • Front
  • Back
a realized gain or loss may be either:
1. fully recognized
2. partially recognized
3. deferred
4. disallowed(personal)
amount realized generally includes:
1. amount of money received
2. FMV of any property received
3. amount of liabilities relieved or discharged of
4. decrease by any money paid or liabilites assumed
Gain/Loss realized calculation
Amount Realized-(Adjusted Basis)= Gain or loss realized
what is the basis in property acquired by purchase
generally, cost
Cost of Property Acquired by Purchase Calculation
Amount Paid+FMW+Improvements-Depr.
For stock sales of different lots of stock, unless the TP can specifically identify shares sold, use ____ method of basis allocation
what is the basis in property acquired by gift
generally, the recipient and the donor have the same basis
limitations on losses in property acquired by gift
if fmv value of gift is less than the donor's basis, recipient's basis for loss is FMV, while basis for gain is donor's basis
what is the basis in property acquired by inheritance
is FMV at date of donor's death unless executor elects FMV as of the alternate valuation date
what is the alternate valuation date?
6 months after death or date of distribution
How long should you ignore income and gifts in respect of a decedent?
one year of death
What are 4 transactions where losses are not deductible?
1. losses on sale of personal property
2. wash sales
3. sales between related parties
4. like-kind exchanges
Occurs when a TP sells stock at a realized liss and also invests in substantially identical property within 30 days before or after the sale
wash sales
How do you determine the basis of stock held in wash sale?
cost of the replacement stock + disallowed loss
what is the holding period in a wash sale?
date of acquisition of original stock
Not deductible in a wash sale
Loss on shares replaced
This concept is based on the idea that a TP should have the financial ability to pay tax in an exchange of property.
"wherewithal to pay concept"
3 Most common nontaxable exchanges
1. Sale of personal residence
2. Involuntary Conversions
3. Like-Kind Exchanges
In the sale of a personal residence, a TP who sales their personal residence may exclude gain on the sale up to ___ if single and ___ if MFJ
single= 250,000
MFJ= 500,000
Can losses on the sale of a residence be deducted?
What are 3 requirements in a sale of personal residence?
1. the residence that is sold must have been owned by the TP and used as his principal residence for a period totaling at least 2 out of 5 years from the sale
2. only one sale every 2 years qualifies for the exclusion
3. any gain in excess of the exclusion must be recognized as a capital gain
What can you use if a TP is forced to sell residence before the 2 year requirement is met?
a reduced exclusion
When is a reduced exclusion allowed?
1. change in place of employment (must be at least 50 miles farther from the old residence than the old job)
2. health reasons
3. unforseen circumstances
Reduced exclusion calculation
(time the residence was owned and used/24 months) * Max Exclusion
Results from the destruction of property as a result of theft, seizure, or condemnation.
involuntary conversion
If a TP reinvests in qualified property after an involuntary conversion, how would they treat a gain?
Gain is deferred if reinvestment occurs by the end of the 2nd taxable year in which the first gain is realized and the replacement is similar or related to use
Procedure for determining gain and new basis on involuntary conversion:
1. determine realized gain or loss (Insurance proceeds-Basis)
2. determine unreinvested proceeds (proceeds-cost of new) and if you spend all, gain is 0.
3. gain recognized: lower of realized gain or unreinvested proceeds
4. realized loss always recognized if deductible (possibly casualty loss)
5. Basis of New= Cost of new- any unrecognized gain
How can a Tp with property that has appreciated in value defer gain on the property?
exchanging the property solely for other property of a like-kind.
How do you defer a gain or loss in a like-kind exchange?
adjust the basis in the replacement property
2 allowable types of property in like-kind exchange
business and investment
What are 4 specifically excluded exchanges from like-kind exchanged?
1. stocks
2. bonds
3. notes
4. partnership interests
When can real estate be exchanged for other real estate?
must be in the US and cannot be exchanged for property other than real estate
Rule for personal property like-kind exchanges
must be the same class of asset and perform the same function
What are the holding period and type of gain for property received in a like-kind exchange?
Short term and Carried over from the property given up.
anything of value exchanged other than the like-kind property, such as cash and liabilities
When is a boot receieved?
if the TP gives up liabilites or receives cash
When is a boot given?
if the TP assumes liabilites or pays out cash
if a TP receives a boot, how should the gain that is realized be recognized?
to the extent of the boot
Like Kind Exchange Procedure: book recived?
3.recognized? basis?
1. Determine basis net of boot of what is given up (old property). This is basis of asset given up plus boot given minus boot received.
2. Realized gain/loss=FMV of property received (new property) less basis net of boot of old property
3. Recognized gain is the less of net boot received or realized gain. (if cash is received, always recognize realized gain.)
4. Basis New=FMV New- Unrecognized Gain + Unrecognized loss
5. Losses never recognized
what is a capital asset?
all assets except:
1. business inventory
2. business receivables
3. real and depreciable property used in trade or business
What are the 2 classifications of assets?
1. ordinary
2. capital
3. $ 1231 assets
real and depreciable property used in business or trade that is held longer than 12 months
$1231 asset
Capital gain or loss occurs only if the capital asset is __ or __
sold or exchanged
Determines whether a capital or $1231 asset will be short-term or long-term
holding period
How long must an asset be held to be considered a $1231 or a long-term capital asset?
12 months
When does the holding period begin for asset acquired in a purchase?
date of purchase
If the basis of an asset acquired in a like-kind exchange does not include any unrecognized gain or loss, what happens to the holding period?
holding period carries over to the property recieved
If the basis of an asset acquired in a like-kind exchange includes an unrecognized gain or loss, what happens to the holding period?
holding period begins on the date the new property is acquired
If the recipients basis of a gift is determined based on the donor's basis, then then donor's holding period..
carries over to the gift recipient
If the recipients basis of a gift is determined based on the FMV on the date of the gift, then then recipients's holding period..
begins on the date of the gift
When does the holding period begin in a wash sale?
date the original stock was purchased
if you have unrecognized gain in basis of involuntary conversion, the holding period..
carries over from old property
if you do not have an unrecognized gain in basis of involuntary conversion, the holding period..
begins on the date of acquisition of new property
Both ST and LT capital gains are fully included in...
gross income
Which type of gain is taxed at TP's marginal rate?
ST gains
How are LT gains taxed?
Both ST and LT gains and losses are ___
If one LT/ST has a gain and one has a loss, what do you do?
net the two groups
If after netting ST/LT there is a net loss, then the maximum capital loss deduction is _____ per year. Any excess is ___.
3000, carried over to the next year
when are ordinary ST/LT losses deductible?
always fully in the year they occur
If a TP owns qualified small business stock and the stock becomes worthless, the goverment allows them to..
write-off large losses in the year the stock becomes worthless
If a TP writes off losses for small business stock, a corporation's total capitalization must not have exceeded _____ when the TP acquired the stock
Stock of qualified small businesses
$1244 stock
$1244 write off limit (single and MFJ)
single- 50,000
MFJ- 100,000
Excess over write-off limitation becomes
Long Term Capital Loss
Stock of orginal investors or owners in C corps
$1202 stock
How long must $1202 stock be held for exclusion?
more than 5 years
How much can qualifying individuals exclude on gains of $1202 stock sale? If there is remaining gain how is that taxed?
50%, any remaining gain is taxed at 28%
Depreciable personal property except land and buildings
$1245 asset
Depreciable realty or land
$1250 asset
An asset becomes a $1245 or $1250 asset when it is ___
When does a $1245 or $1250 asset become a $1231 asset?
when held longer than 12 months, but they still keep both labels
A machine held for 6 months is a _______ asset
A machine held for 14 months is a _______ asset
$1231 and $1245
For sales of property that has been held less than 1 year, the gains and losses are...
Losses from trade or business property are subject to a ____ limitation?
For $1231 assets, gains are considered ___ and losses are considered ___
Long term capital gain, ordinary loss
For $1231 property, any gain from $1231 assets will be treated as ...
ordinary income to the extent of 1231 losses deducted in the prior 5 years
Allowed as an ordinary deduction and reduces the basis of assets
Any gain from the sale of a $1231 asset that is the result of a reduction in basis from depreciation, must be treated as...
ordinary income
the amount of depreciation taken that exceeds straight line allowed on 1250 assets
1250 gain
Force Tp to treat some gains held for more than 1 year as ordinary income and keep from being a 1231 gain.
depreciation recapture rules
Recapture procedure:
1. determine the amount of realized gain on the sale.
2. determine the amount of 1245 recapture, which will be taxed as ordinary income.
3. the recapture amount is the lesser of the realized gain or accumulated depreciation taken.
4. treat any gain in excess of 1245 recapture as 1231 gain.
Recapture does not apply to ___.
Combination Process for netting Capital and 1231 gains and losses:
1. treat all 1245 and 1250 recapture as ordinary income.
2. net all casualty gains and losses. If the result is a loss, it is treated as ordinary. If the result is a gain, the net result is treated as a 1231 gain and carries down to step 3.
3. Net all 1231 and condemnation gains and losses. After application of the lookback rule, any remaining 1231 gain is classified as LTCG.
4. Net all LT gains and losses to determine your net LT position.
5. Net all ST gains and losses to determine your net ST position.
6. Combine steps 4 and 5 only if one is a gain and the other is a loss.