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85 Cards in this Set
- Front
- Back
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a realized gain or loss may be either:
1. 2. 3. 4. |
1. fully recognized
2. partially recognized 3. deferred 4. disallowed(personal) |
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amount realized generally includes:
1. 2. 3. 4. |
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 |
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Gain/Loss realized calculation
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Amount Realized-(Adjusted Basis)= Gain or loss realized
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what is the basis in property acquired by purchase
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generally, cost
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Cost of Property Acquired by Purchase Calculation
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Amount Paid+FMW+Improvements-Depr.
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For stock sales of different lots of stock, unless the TP can specifically identify shares sold, use ____ method of basis allocation
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FIFO
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what is the basis in property acquired by gift
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generally, the recipient and the donor have the same basis
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limitations on losses in property acquired by gift
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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
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what is the basis in property acquired by inheritance
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is FMV at date of donor's death unless executor elects FMV as of the alternate valuation date
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what is the alternate valuation date?
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6 months after death or date of distribution
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How long should you ignore income and gifts in respect of a decedent?
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one year of death
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What are 4 transactions where losses are not deductible?
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1. losses on sale of personal property
2. wash sales 3. sales between related parties 4. like-kind exchanges |
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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
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wash sales
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How do you determine the basis of stock held in wash sale?
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cost of the replacement stock + disallowed loss
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what is the holding period in a wash sale?
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date of acquisition of original stock
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Not deductible in a wash sale
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Loss on shares replaced
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This concept is based on the idea that a TP should have the financial ability to pay tax in an exchange of property.
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"wherewithal to pay concept"
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3 Most common nontaxable exchanges
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1. Sale of personal residence
2. Involuntary Conversions 3. Like-Kind Exchanges |
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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
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single= 250,000
MFJ= 500,000 |
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Can losses on the sale of a residence be deducted?
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NO
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What are 3 requirements in a sale of personal residence?
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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 |
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What can you use if a TP is forced to sell residence before the 2 year requirement is met?
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a reduced exclusion
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When is a reduced exclusion allowed?
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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 |
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Reduced exclusion calculation
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(time the residence was owned and used/24 months) * Max Exclusion
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Results from the destruction of property as a result of theft, seizure, or condemnation.
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involuntary conversion
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If a TP reinvests in qualified property after an involuntary conversion, how would they treat a gain?
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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
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Procedure for determining gain and new basis on involuntary conversion:
1. 2. 3. 4. 5. |
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 |
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How can a Tp with property that has appreciated in value defer gain on the property?
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exchanging the property solely for other property of a like-kind.
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How do you defer a gain or loss in a like-kind exchange?
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adjust the basis in the replacement property
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2 allowable types of property in like-kind exchange
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business and investment
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What are 4 specifically excluded exchanges from like-kind exchanged?
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1. stocks
2. bonds 3. notes 4. partnership interests |
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When can real estate be exchanged for other real estate?
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must be in the US and cannot be exchanged for property other than real estate
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Rule for personal property like-kind exchanges
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must be the same class of asset and perform the same function
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What are the holding period and type of gain for property received in a like-kind exchange?
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Short term and Carried over from the property given up.
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anything of value exchanged other than the like-kind property, such as cash and liabilities
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Boot
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When is a boot receieved?
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if the TP gives up liabilites or receives cash
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When is a boot given?
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if the TP assumes liabilites or pays out cash
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if a TP receives a boot, how should the gain that is realized be recognized?
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to the extent of the boot
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Like Kind Exchange Procedure:
1.net book recived? 2.FMV? 3.recognized? 4.new basis? 5.losses? |
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 |
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what is a capital asset?
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all assets except:
1. business inventory 2. business receivables 3. real and depreciable property used in trade or business |
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What are the 2 classifications of assets?
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1. ordinary
2. capital 3. $ 1231 assets |
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real and depreciable property used in business or trade that is held longer than 12 months
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$1231 asset
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Capital gain or loss occurs only if the capital asset is __ or __
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sold or exchanged
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Determines whether a capital or $1231 asset will be short-term or long-term
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holding period
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How long must an asset be held to be considered a $1231 or a long-term capital asset?
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12 months
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When does the holding period begin for asset acquired in a purchase?
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date of purchase
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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?
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holding period carries over to the property recieved
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If the basis of an asset acquired in a like-kind exchange includes an unrecognized gain or loss, what happens to the holding period?
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holding period begins on the date the new property is acquired
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If the recipients basis of a gift is determined based on the donor's basis, then then donor's holding period..
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carries over to the gift recipient
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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..
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begins on the date of the gift
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When does the holding period begin in a wash sale?
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date the original stock was purchased
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if you have unrecognized gain in basis of involuntary conversion, the holding period..
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carries over from old property
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if you do not have an unrecognized gain in basis of involuntary conversion, the holding period..
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begins on the date of acquisition of new property
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Both ST and LT capital gains are fully included in...
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gross income
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Which type of gain is taxed at TP's marginal rate?
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ST gains
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How are LT gains taxed?
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15%
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Both ST and LT gains and losses are ___
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netted
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If one LT/ST has a gain and one has a loss, what do you do?
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net the two groups
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If after netting ST/LT there is a net loss, then the maximum capital loss deduction is _____ per year. Any excess is ___.
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3000, carried over to the next year
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when are ordinary ST/LT losses deductible?
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always fully in the year they occur
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If a TP owns qualified small business stock and the stock becomes worthless, the goverment allows them to..
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write-off large losses in the year the stock becomes worthless
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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
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1,000,000
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Stock of qualified small businesses
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$1244 stock
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$1244 write off limit (single and MFJ)
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single- 50,000
MFJ- 100,000 |
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Excess over write-off limitation becomes
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Long Term Capital Loss
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Stock of orginal investors or owners in C corps
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$1202 stock
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How long must $1202 stock be held for exclusion?
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more than 5 years
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How much can qualifying individuals exclude on gains of $1202 stock sale? If there is remaining gain how is that taxed?
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50%, any remaining gain is taxed at 28%
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Depreciable personal property except land and buildings
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$1245 asset
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Depreciable realty or land
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$1250 asset
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An asset becomes a $1245 or $1250 asset when it is ___
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purchased
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When does a $1245 or $1250 asset become a $1231 asset?
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when held longer than 12 months, but they still keep both labels
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A machine held for 6 months is a _______ asset
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$1245
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A machine held for 14 months is a _______ asset
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$1231 and $1245
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For sales of property that has been held less than 1 year, the gains and losses are...
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ordinary
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Losses from trade or business property are subject to a ____ limitation?
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$0
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For $1231 assets, gains are considered ___ and losses are considered ___
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Long term capital gain, ordinary loss
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For $1231 property, any gain from $1231 assets will be treated as ...
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ordinary income to the extent of 1231 losses deducted in the prior 5 years
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Allowed as an ordinary deduction and reduces the basis of assets
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Depreciation
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Any gain from the sale of a $1231 asset that is the result of a reduction in basis from depreciation, must be treated as...
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ordinary income
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the amount of depreciation taken that exceeds straight line allowed on 1250 assets
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1250 gain
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Force Tp to treat some gains held for more than 1 year as ordinary income and keep from being a 1231 gain.
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depreciation recapture rules
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Recapture procedure:
1. 2. 3. 4. |
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. |
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Recapture does not apply to ___.
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Losses
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Combination Process for netting Capital and 1231 gains and losses:
1. 2. 3. 4. 5. 6. |
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. |
