• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/42

Click to flip

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;

42 Cards in this Set

  • Front
  • Back

Like-Kind Exchange

No gain or loss is recognized where investment property or business property is exchanged solely for property of a like-kind.




Must be an actual exchange, a sale and purchase of similar property does not qualify.

Delayed Exchange

Property must be received and identified within 45 days are the date that the old property is transferred.




New property must be received within 180 days after the date on which the old property is transferred, but not later than the due date of the tax return for the year that the old property is transferred.

Qualified Intermediary

A person who is not the taxpayer, who:


- Acquires the relinquished property


- Transfers the relinquished property


- Acquires the replacement property


- Transfers the replacement property

Qualifying Property

Like-kind exchange only for qualifying property. Property held for productive use in a trade or business or held for investment purposes.




Specifically excluded: inventory or other property held primarily for sale; general or limited partnership interest; securities.

Like-Kind Requirement

Realty for realty


Personalty for personalty

3 Types of Exchanges Prohibited

1. Personalty for realty and vice versa


2. US Realty for foreign realty


3. Exchange of livestock of different sexes

When to use Like-Kind Exchanges

When real estate has reached the crossover point, meaning the deductions from a real estate investment are equal to or less than the income the real estate is generating.

Boot

A boot is any portion that is not qualified when received in a like-kind exchange.




Cash, net debt relief, or other non qualifying property.

Like-Kind Exchange Rules

1. Losses are never recognized (deducted) by either taxpayer in a like-kind exchange.


2. The like-kind provision is mandatory. To be used in deciding to exchange or buy then sell.


3. No gain will be recognized unless the taxpayer receives boot.


4. Gain generally recognized by taxpayer who receives boot.


5. Gain recognized is always the lesser of the gain realized or the boot received.

Holding Period Requirement

Any gain or loss must be realized within 2 years after transfer/exchange. Does not qualify if involuntary conversion, death, or non-tax avoidance.

Character of Gain in a Like-Kind Exchange

The lesser of the boot or the gain. If a gain has occurred, figure out the 1231 vs 1245 total gain.

Computation Idea in Like-Kind Exchange

Figure out FMV of what you are receiving (land, cash, etc.) and FMV of what you are giving up. Usually a gain because a loss cannot be recognized and so you wouldn't do an exchange.

Like-Kind Computation Steps

1. Calculate gain realized


2. Calculate gain recognized (taxable gain)


3. Calculate substituted basis in property (gain realized but not recognized)


4. Calculate substituted basis



Real Estate Dealer Notes

Real estate dealer getting a property would be considered to be inventory.

Section 121

Realized gains on the sale of a principal residence may be excluded---$250k individual; $500k married. Must meet ownership & use test, or be principal residence for 2 of last 5 years. Must not have used Section 121 exclusion within last 2 years.




If one spouse has used and one has not, up to $250k for the exclusion.

Section 121 Exclusions

1. Exclusion is per person (ownership) per residence; cannot aggregate


2. Can use deceased spouse if sold within 2 years. Surviving spouse must be unmarried.

Section 121 Extraneous Notes

1. Partial deductions prorated over the 2 years are available


2. Vacations,etc. count as time in the home


3. No age restrictions or qualifications


4. If divorced and meet qualifications, both spouses can take deduction.

Partial Exclusion from Nonqualified Use

Full exclusion may not be available if used other than primary residence. Gain is multiplied by a fraction; numerator is number of non qualified use years; denominator is years of ownership. Property must be sold after 2008.

Primary Residence

Wherever the taxpayer spends the majority of his time. May only claim the deduction or exclusion at that residence.

Military Families

Exclusion would go back for 10 years in determining primary residence.

Installment Sale Treatment

Seller recognizes the gain proportionately in each year received. Automatic, but can elect to not participate. Would opt out if large loss to be realized.




Interest is charged on the amount deferred.

Installment Sale Exclusions

Items that cannot be used for tax purposes on installment sale:


- Securities


- Real estate dealers


- Timeshares dealers


- Farm property dealers

Installment Sale Tax Treatment

Pro-rated based upon the profit divided by the original basis. Similar to a prorated withdrawal from a variable annuity where only a portion is taxable.

Installment Sale Tax Treatment (Cost Recovery)

If part of profit is from depreciation, and needs to be taxed as ordinary income, adjust the profit down when figuring out the prorated percentage per installment payment.

Casualty Loss Exclusions

1. Progressive deterioration


2. Erosion


3. Disease


4. Insect Damage (Termites)

Casualty Loss Required Documentation

1. Type and when it occurred


2. The loss was direct result of the casualty


3. That they were owners or leasing the property


4. Reported in year occurred

Theft Loss Required Documentation

1. When it was discovered missing


2. That the property was actually stolen


3. That they were the owner's of the property


4. Report in year discovered, not occurred

Tax Treatment for Loss

1. Reduce the deductible loss by the amount of reimbursement received.


2. Claim must be submitted in a timely manner.


3. Reimbursement payments greater than adjusted basis must be reported as gains.

Casualty Loss Calculation Steps

1. Figure out the total amount lost


2. Lesser of adjusted basis or loss is the deducted.


3. Must exceed $100 for each loss


4. Reduced to the amount that exceeds 10% of AGI


5. Loss then reduced by the reimbursement from the insurance company.

Involuntary Conversion

Available to taxpayers that no longer have use of their properties due to casualties or thefts. Recognition of the gain realized and resulting tax may be postponed if the taxpayers purchase qualified replacement property within a specified replacement period.

Condemnation

Imminent domain used by the state to claim property, or to be acquired for public works project, etc.




Not to be used because of the condition of the property.

Involuntary Conversion Replacement Period

Last day 2 taxable years after the event. Contingent upon the date of the event or the discovery, loss or theft.

Replacement Period for Condemnation

Last day of the second taxable year following the year in which any part of the gain on the domination is realized. Keyword: realized.

Gross Profit Percentage (Installment Purchase)

Divide the gross profit by the contract price. Sale price minus the adjusted basis by the contract price.

Casualty Loss Computation First Step

Begin with the lesser of the decrease in fair market value or the adjusted basis in the property after receipt of payment, etc. from the insurance company.

Second Step in Calculating Qualified Exchange

Lower of the realized gain or the boot received.

Requirements for a married couple filing jointly to claim a full $500k Section 121 Exclusion

At least one spouse must have owned, and both spouses must have lived in, the residence for at least two out of the previous five years.

Installment Sale Requirements

An installment sale is a sale in which a payment will be received in a year later than the installment sale.

Section 121 Exclusion

Section 121 may not be used if the residence was acquired in a like kind exchange within the last five years.

Tax Form Treatment of a Casualty or Theft Loss

Itemized deduction.

Replacement Period for Condemnation

The end of the 3rd taxable year.

How does a broker's commission affect cost basis

It increases the cost basis reducing the gain.