R2
What is the Basis of Gifted property? (4 outcomes)
1) General Rule: Use Cost basis, unless FMV is less than Cost.
If so, then:
1) Sell property above caost basis (use cost for gain calculation)
2) Sell property between basis and fair market value (no gain/loss)
3) Sell property below fair market value (use fair market value for loss calculation)
Note, this makes it “Short-term”
R2
What is the basis of inherited property?
1) The fair market value at the time of death.
2) Alternate Valuation Date: Elect to base it off the fair market value 6 months after the time of death (or the date of distribution, if before 6 months)
R2
What is the safe harbor rule?
lesser of:
(1) the original cost basis, + or - adjusted for any improvements to the property
OR
(2) the FMV of the property on the date of conversion.
Safe harbor rule
1) For AFS, $5000 per item
2) For no AFS, $2500 per item
R2
What is the carryforward rule for a capital loss for individuals vs corporations?
Individual Cap Loss =
-Carryforward Max 3K each year
-Carry forward indefinitely
Corporate capital losses =
-No cap on offset
-Carried back 3 years and forward 5 years.
CAPITAL LOSSES ONLY OFFSET CAPITAL GAINS. ALWAYS.
R2
What are the years of depreciation for fixed assets according to MACRS? Real and Personal property.
Real Property Classes:
27.5-year class (Residential Rental Property):
-Apartment buildings
-Rental homes
39-year class (Nonresidential Real Property):
-Office buildings
-Warehouses
Personal Property Classes:
3-year class:
-Special tools
5-year class:
-Automobiles
-Computers and copiers
7-year class:
-Furniture and fixtures
-Machinery and equipment
15-year class:
-Qualified improvements to the interior of existing nonresidential buildings
R2
Section 179 Expense Deduction eligible items? Other rules?
- Tangible personal property
- Off-the-shelf computer equipment
- Interior property improvements
- Must be non-residential property
Rule: Maximum of $1,250,000 & phases out over $3,130,000
Rule: No greater than Taxable income
R2
What is the amortization for intangible assets?
intangible assets
Full month convention ( / 180 months) * Months left in year
What are the rules for:
Converted assets?
Purchase for business?
Gifted?
Inherited?
Converted: Lessor of FMV or COST
Purch for business @ COST
-Bonus depreciation of 40% new or used asset (under 20 year life) for business purchase
Gifted @ Cost
Inherited @ FMV
When do you use mid-month, half year, or mid-quarter?
Real property = Mid-month
Personal property = Half year
Personal property = Mid-quarter
Mid-quarter if > 40% of personal property assets placed into service in 4th quarter
Note: * .5 if in year of disposal (Half-year convention)
Tax basis for a conversion from personal to business where there is a gain/loss. What are the rules?
Tax Basis depreciation for Loss - Lessor of:
1) Original Cost
2) FMV at conversion date
Then –> Calculate using (Cost or FMV - Depreciation) = G/L
Tax Basis depreciation for Gain
1) (Original cost minus depreciation)
