Property Transactions

Question 1

What are ordinary assets?

Answer 1

• Depreciable property held in a trade/business for a year or less (includes AR, NR, and Inventory)
• Includes copyrights and musical, artistic, and literary works if held by person who created work
• Composer can elect to have musical work treated as capital asset

Question 2

What are Section 1231 assets?

Answer 2

-Depreciable property in a trade/business FOR MORE than a year

Question 3

How do you calculate amount realized?

Answer 3

Cash received
+FMV of property or services received
+Liabilities assumed by buyer
-Selling expenses

Question 4

Are losses from personal assets deductible?

Answer 4

NO! w/ exception for casualty losses

Question 5

What is the basis for gifts?

Answer 5

• Gain basis: AB of donor
• Loss basis: Lower of AB of donor or FMV at date of gift
• Basis is increased for portion of gift tax paid by donor due to appreciation in property

Question 6

How do you calculate the adjustment to basis for gift tax paid due to appreciation in property?

Answer 6

Unrealized appreciation/(FMV at date of gift - annual exclusion) x Gift tax paid

Question 7

If property sold by donee for amount in between gain and loss basis, how do you calculate gain/loss?

Answer 7

-NO GAIN/LOSS recognized in this situation

Question 8

What is the holding period for gifted property?

Answer 8

• Gain basis: Include holding period of donor

- Loss basis: Begins on date of gift

Question 9

What is basis and holding period of inherited property?

Answer 9

• FMV at date of death or on alternate valuation date if selected by executor as valuation date
• If sold before alternate valuation date (if elected) use FMV on date of distribution
• Holding period is always long term

Question 10

What is the basis of property converted from personal to investment/business use?

Answer 10

-Same rules as gifted property

Question 11

What are capital assets?

Answer 11

• Anything not ordinary or 1231
• Includes personal use and investment use
• Goodwill of a corporation is a capital asset