What is the tax treatment of section 1244 stock losses
Ordinary loss up to
$50,000 (Single)
$100,000 (Married)
How can C Corps use capital losses
Only to offset capital gains (Not ordinary income)
What would trigger a section 382 limitation
Greater than 50% ownership change by 5% shareholders
What is the order of loss limitations rules
- At-Risk
- Passive
What happens to PALs “Passive Activity Losses”
PALs are used to only offset passive income and any excess is carried forward
What is the Mom and Pop Exception
Exception up to $25,000 rental losses allowed with active participation in rental operations
What increases/decreases S Corp Shareholders basis
Increase: Ordinary Income, Separately Stated Income/Gains
Decrease: Losses/Deductions, Distributions, Nondeductible Expenses
When does build-in gains (BIG) tax apply and What is the rate
When former C Corp sells appreciated assets within 5 years of S Corp election
21% tax rate (Corporate level)
What is BIG tax based on
Lesser of Built-In gain at conversion, Gain recognized, Taxable income (as if C Corp)
What are the key requirements of 501(c)(3) status
Exempt Purpose, No Private Benefit, No Political Activity, Limited Lobbying
What are qualifying 501(c)(3) purposes
Charitable, Religious, Educational, Scientific, Literary, Public Safety, Amateur Sports, Prevention of Cruelty
If an Activity has All Work done by Unpaid Volunteers is it UBI?
No, activity is not UBI (Unrelated business income)
Are Bingo Games considered UBI
No
How is a trust taxed & How are trust distributions taxed
As a separate taxable entity & deductible to trust/Taxable to beneficiary
What is the corpus of a trust
The principal –> Original assets of the trust + Capital gain/loss
How do corporations treat distributions of appreciated property
Recognizes gain as if sold at FMV (No losses recognized)
What happens when a C Corp converts to an LLC (Partnerhsip) - Two Outcomes
- Deemed Liquidation (Taxable)
- Contribution to LLC (NonTaxable)
What increases and decreases a partners basis
Increases - Contributions, Share of income, Share of liabilities
Decreases - Distributions, Losses, Debt relief
In a divorce, what is the recipient spouses basis in property settlement
Carryover basis - Basis in hands of former spouse
In a suspended loss carryforward involving tax basis, at-risk basis, and passive loss limitations - what is the order to consider
Tax Basis
At-Risk Basis
Passive Loss
How do you calculate AGI when passive losses and rental real estate are involved
AGI = Wages + Interest + Business Income - Allowed Losses
Keys
*Apply loss limits in order: Basis -> At-risk -> Passive
*Rental real estate loss up to 25K allowed if active participation
*Phase-out starts at 100K AGI
*Passive losses only offset passive income
How do you calculate gain on sale of partnership interest
Gain = Amount realized - Adjusted basis
Amount realized = Cash received + Debt relief
Adjusted Basis = Initial Contribution + share of income + share of liabilities - distributions
In an involuntary conversion, if all proceeds are reinvested, what is the basis of the new property
Basis = Cost of new property - deferred gain
Proceeds = 43k, basis = 12k –> gain = 31k
Reinvested all –> Deferred gain = 31k
New property cost = 51k
New basis = 51k - 31k = 20k
What gain is recognized in year 2 is?
Installment Sale - Gain Recognized
Land sold for $300k (100k cash + 200k note)
Basis = $100k
Year 2 Pmt = $30k
Step 1: Gross Profit ($300k - $100k) / $300k = 66.67%
Step 2: Recognized Gain $30k x 66.67% = $20k
Gain recognized = 20k
Installment = Pmt x GP%
