Ch. 7: Property Tax Transactions
What amount of gain deduction do you have for the sale of a personal residence?
$250k for single $500k for MFJ -Note: Pro rate if forced to do it b/c of job Can do it every 2 years No longer applies to nonqualified use, if after 2008
How are personal consumption assets taxed? (think refrigerator etc..)
-Losses are not deductible -Gains are taxable
Why is the tax treatment of 1231 assets considered the best of both worlds?
1) Gain can offset a loss 2) Loss can be deducted Since a net 1231 gain is treated as a capital gain, it can be used to offset net capital losses that otherwise might not have been deductible in the current year. Since a 1231 loss is treated as an ordinary loss, it is fully deductible.
What would be considered 1231 (capital assets, non-business assets)?
1) Investment assets 2) Personal use assets (ie, used by taxpayer or family/household) 3) Goodwill—Although goodwill is amortizable, it is not actually used by a business in a meaningful sense, since it doesn't diminish in value from usage, therefore, it is also treated as a capital asset.
What's the difference between: -Section 1245 depreciation -Section 1250 depreciation for real property -Section 291 (add on to section 1250)
These all relate to depreciation recapture: Section 1245: Tangible or intangible personal property used in a trade or business. Recapture the lesser of the accumulated depreciation or gain, and include in ordinary income. Any gain exceeding the recapture amount is considered a 1231 capital gain. Section 1250: This applies to the selling of real property (like an office building). If you apply accelerated depreciation methods compared to S/L, then you will have a bigger gain. Section 1250 depreciation recapture is designed to recapture the difference between the S/L and accelerated depreciation. It will be taxed as an ordinary gain. This difference will be taxed at a LTCG of 25%. So, you basically take the difference in depreciation and add this to ordinary income. Section 291: This only applies to C corporations. It is the unrecaptured amount times 20%. Then add this amount to the ordinary income.
What's the difference between section 1244 stock and 1245 property?
1244 Stock: To incentivize investment in small business, a loss on Section 1244 stock allows individuals to reclassify part a capital loss to an ordinary loss (ie, no $3,000 limitation). The statutory amount reclassified as an ordinary loss is $50,000 ($100,000 if married filing jointly). Any excess remains a capital loss. Section 1245 property is tangible or intangible personal property used in a trade or business that is subject to depreciation or amortization. Examples include equipment, furniture, and patents. During the time the property is used, depreciation (or amortization) deductions are taken, reducing ordinary taxable income. When a Section 1245 asset is sold at a gain, part of the gain is recaptured (ie, reclassified) as ordinary income. The reclassification of the character of the gain is required to offset the depreciation deductions taken during the asset's life. The maximum amount of Section 1245 recapture is the lesser of the accumulated depreciation (ie, depreciation taken) or the realized gain. Any gain exceeding the recapture amount is a result of the property's appreciated FMV (above original cost) and is treated as a Section 1231 gain, which is generally treated as a capital gain.
How are collectibles taxed and what schedule do they show up on?
28% and show up on schedule D Collectibles include works of art, rugs, antiques, metals (gold), gems, stamps, coins, alcoholic beverages and other certain tangible property.
How is 1231 property gains/losses treated for tax purposes? And, what is section 1231 property?
A Section 1231 loss is treated as an ordinary loss (no annual limitation); a gain is treated as a long-term capital gain that may be taxed at preferential rates.
What is the netting process for corporations
A corporation may not deduct a capital loss. Instead, it may be carried back to any or all of the preceding three years to be offset against previously taxable capital gains with the remainder carried forward for up to 5 years.
How is a net loss applied to reduce a net gain?
A net loss in any rate group is applied to reduce the net gain in the highest rate group first (eg, 28% collectibles gain, 25% Unrecaptured Sec. 1250 gain, then 15% capital gain).
What are the key requirements for an installment sale?
A taxpayer may sell property and receive the payments over multiple years. An installment sale (exhibit) allows the seller to recognize (ie, report) a portion of the taxable gain as payments are received over the years, even among family members. Losses are not recognized among family members
How do you calculate gross profit on installment sales?
A taxpayer may sell property and receive the payments over multiple years. An installment sale allows the seller to recognize a portion of the gain (ie, gross profit) as payments are received over the years. The gross profit is the net proceeds minus the adjusted basis. Net proceeds are the total cash, seller debt assumed, and property received by the seller less any selling expenses in exchange for the sold property.
What does IRC Section 263A, the Uniform Capitalization Rules, state?
An entity is required to capitalize indirect costs, including most general, administrative, engineering, and overhead costs associated with holding the assets. This would include costs associated with recruiting, payroll, and security services. Nonmanufacturing costs such as selling, advertising, marketing, and research and development expenditures are recognized as expense when incurred.
See example: of 1031 exchange with boot consideration A taxpayer owned land with a basis of $120,000, subject to a mortgage of $75,000. The taxpayer exchanged the land held for another parcel of land with a fair market value of $200,000 plus cash of $35,000, and the taxpayer was relieved of the mortgage on the relinquished land. The transaction qualified for like-kind exchange treatment. What amount of taxable gain will be recognized on the taxpayer's tax return for this exchange?
Answer: $110,000
See example: A taxpayer owned a rental home with an $85,000 fair market value, a $70,000 adjusted basis, and a $60,000 mortgage. The taxpayer exchanged the home for $12,000 in cash plus a rental property with a $65,000 fair market value and a $52,000 mortgage. What amount of gain, if any, must be recognized by the taxpayer on the exchange?
Answer: $15,000 If a gain is realized, the taxpayer must recognize the lesser of the net amount of boot received ($20,000 = $12,000 + $60,000 −- $52,000) or the realized gain ($15,000 = $65,000 + $20,000 −- $70,000). Things to remember:If the taxpayer (1) receives more boot than given, and (2) realizes a gain on the exchange, the taxpayer must recognize a gain on the lesser of the boot received or the fair market value of the realized gain.
How do you account for a gifted item that has appreciated in value and the person gifting the item has paid property taxes? see example: Mary gives Joanne a gift of land worth $80,000. The land's original cost to Mary was $30,000. As a result of the transfer, Mary paid a gift tax of $12,000. What is Joanne's basis in the land? Assume an annual gift exclusion of $15,000.
Answer: $39,231 A donee's basis in an appreciated gift is equal to the donor's basis plus gift tax paid with respect to the gift's appreciation. The amount of gift tax added is the amount of tax paid, $12,000, multiplied by the ratio of the net appreciation in the value of the gift, $50,000, to the amount of the gift, which is calculated after eliminating the annual gift exclusion, $80,000 - $15,000 or $65,000. As a result, the amount of gift tax that will be added to the donor's basis of $30,000 will be $12,000 x ($50,000/$65,000), or $9,231, so Joanne's basis will be $39,231.
See an example of 1245 depreciation recapture: Decker sold equipment for $200,000. The equipment was purchased for $160,000 and had accumulated depreciation of $60,000. What amount is reported as ordinary income under Code Sec. 1245?
Answer: $60,000 Under Section 1245, depreciation previously taken on property used in a business must be recaptured as ordinary income when the property is sold. The amount recognized as ordinary income is the lesser of: (i) the gain realized or (ii) depreciation taken. The gain realized is $100,000, which is the sales price less the adjusted basis of the equipment. ($200,000 - [$160,000 - $60,000]). The amount of depreciation taken was $60,000. Thus, $60,000 must be recognized as ordinary income.
See another example of 1245 depreciation: An individual sold equipment used in a trade or business for $60,000. The equipment was acquired three years ago for $50,000, and $25,000 of allowable depreciation was claimed. How should the sale be reported on the income tax return?
Answer: Ordinary income of $25,000 and Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) gain of $10,000. Allowable depreciation estimates the deterioration, decrease in value, and obsolescence of a long-term investment/business asset. Taxpayers can reduce ordinary income and their tax liability to reflect this economic cost. However, a gain recognized on a depreciable asset indicates that the estimated depreciation exceeded the asset's actual depreciation in value. Consequently, prior deductions must be added back into ordinary income (ie, recaptured). Gains recognized on Section 1245 property are split among the causes of that gain. Recognized gains are allocated first toward ordinary income to recapture the lesserof the recognized gain or the depreciation previously allowed. Any remaining gain in excess of recapture is a result of the property's appreciated value and is treated as a Section 1231 gain. This individual recognized a $35,000 gain ($60,000 sale price − [$50,000 cost − $25,000 depreciation]), which indicates that prior estimated depreciation exceeded the equipment's actual depreciation in value by $25,000 (lesser of $35,000 or $25,000) (Choice B). Therefore, the entire $25,000 previously deducted from ordinary income must be recaptured. The remaining $10,000 is a Section 1231 gain taxed at the capital gains rate (Choices A and C). Things to remember:Allowable depreciation is an estimate. Gains recognized on Section 1245 property result from previous depreciation deductions exceeding the property's actual depreciation in value plus any actual appreciation in value. Consequently, the lesser of the recognized gain or previous depreciation must be recaptured. Any remaining gains exceeding the recaptured amount are treated as Section 1231 gains.
What are the uniform capitalization rules (Uni-cap), and who must it be used by?
Apply to real or tangible personal property produced by the taxpayer for use in a trade or business and for real or personal property, tangible or intangible, acquired for resale. Relates to when a corporation, partnership or sole proprietorship has manufactured or constructed an asset for use, sale or resale,
What is the $5,000 per item deduction?
As a general rule, under Regulation Sec. 1.263(a)-1, an entity may deduct (expense) the cost of an item of property for each invoice or the cost of an item that is substantiated by an invoice.
What is and How is the loss of 1244 stock treated?
As an ordinary loss. Different than a capital loss. This lets new or smaller companies take advantage of lower effective tax rates and increased deductions. Stock is a capital asset and generally results in either a capital gain or loss when disposed or deemed worthless. Taxpayers net gains and losses to determine an overall net capital gain or loss. The deduction for a net capital loss is limited to $3,000 annually for individual taxpayers. The rest is carried forward. However, to incentivize investment in small business, a loss on Section 1244 stock allows individuals to reclassify part of a capital loss to an ordinary loss (ie, no $3,000 limitation). -The statutory amount reclassified as an ordinary loss is $50,000 ($100,000 if married filing jointly). -Any excess remains a capital loss. To qualify for Section 12444 treatment, an individual must be the original purchaser of the stock (eg, stock cannot be inherited or gifted).
How is bad debt recognized for tax purposes?
Bona fide debt (sincere) is an obligation established with (1) an expectation of a determinable amount of repayment, and (2) an intent to enforce the obligation. Should a bona fide debt become partially worthless, loss recognition is determined by whether the debt was created/acquired in connection with the taxpayer's trade or business. Partial losses related to bona fide business debt are recognized the year incurred; however, partial losses related to bona fide nonbusiness debt are not allowed. Bona fide nonbusiness debt is treated as a loss only the year it becomes wholly worthless (ie, 0% of principal is collectible).
How do you treat general repairs and maintenance?
Cost of routine repairs and maintenance under Sec. 162 are expensed when they are incurred to keep existing property operating efficiently and effectively.
Under the uniform capitalization rules (UNICAP), what production costs must be capitalized?
Direct material, direct labor, production and indirect production.
How do you determine the basis of gifted property?
Example of no gain/loss recognized: Parrot received land as a gift with a fair market value of $5,000. The land was purchased by the donor for $8,000. The land is sold for $6,000. What amount of gain should be reported? Answer is 0
How do you calculate the realized gain on sale from a personal residence?
Gain= (Sale price − Sales fees) − (Purchase price + Acquisition costs + Improvements)
What are ordinary income assets and how are they taxed?
Generally refers to assets that were acquired or produced with the intention of being sold in the ordinary course of business. May include: 1) Inventory 2) Receivables 3) Self-created artistic work Tax Treatment: All gains/losses are taxed at ordinary tax rates.
If you are forced to sell your house due to place of employment, health reasons, or some other unforeseen circumstance, how much of the gain can you exclude?
Generally, if you have lived in your home for the past 2 out of 5 years, then you can exclude $250k or $500k (MFJ). If you need to move, then you can exclude an amount equal to the time you have lived in your house. For example, I have lived in my house for one year, and I need to move. Then I will deduct (12months/24months) times $250,000; or, I can deduct $125k against any gain I may incur from the sale of my house.
When would you have a wash sale and can you deduct them?
If an asset that has been sold is repurchased within 30 days prior to or after the date of sale, it is considered a wash sale. Gains on wash sales are taxable, but losses on wash sales are not deductible. You add the loss to the basis of the new shares acquired. Since the sale occurred on December 27, and a purchase of the same number of identical shares was made within 30 days, on December 20, the sale is a wash sale. The loss of $500 (original purchase) - $410 (price I sold at), or $90 is not deductible. It is, however, added to the basis of the remaining shares resulting in a basis of $400 (second purchase amount) + $90 or $490.
What is the alternate valuation date for inheritances?
If an election is made in the filing of the estate tax return to use the alternate valuation date, then the basis will be the earlier of: 1) The date the property was transferred to the beneficiary. 2) Six months after the date of death.
In a like-kind exchange, how do you calculate the new basis of your property?
In a like-kind exchange (LKE), "like-kind" refers to the property's character (ie, use) and class (eg, real estate), not the grade or quality. Thus, the grade of land, whether unimproved or improved (eg, has a building), does not determine if properties are like-kind. Qualified property received in an LKE assumes the adjusted basis of the qualified property given. Basis is then increased by boot given, decreased by boot received, and increased by recognized gain (if applicable).
What are 1231 assets? How are they taxed?
Non-current business assets. Held longer than a year. May include: 1) Depreciable and amortizable property 2) Land used in business, PP&E Section 1231 assets are land or depreciable property used in a trade or business for more than one year. Capital assets (eg, investments) and assets that produce ordinary income (eg, inventory, receivables, self-created intangibles) are not Section 1231 assets. Section 1231 was enacted to encourage businesses to invest in trade or business assets because the provision provide the best of both worlds. Gains on Section 1231 property are long-term capital gains and receive preferential tax rates; losses are treated as ordinary losses and are fully deductible against ordinary income.
Can you deduct losses from related parties? Who are related parties?
Not deductible
Who does the uniform capitalization rules apply to?
Note: $26M is the threshold it applies to. -Must be used by those with tangible property, not retailers.
What would not be considered 1231 (capital assets)
Note: Generally anything used in a trade/business. -Self-created intangible property -Consumable supplies 1) Property normally included in inventory or held for sale to customers in the ordinary course of business. 2) Depreciable property and real estate used in business 3) Accounts and notes receivable arising from sales or services in the taxpayer's business 4) Copyrights, literary, musical or artistic compositions 5) Treasury stock
What tax rates apply to short term capital gains?
Ordinary tax rates
What is a 1031 (like kind) exchanges? How is boot taxed?
Sec. 1031 allows real property held for investment or productive use in a business to be exchanged tax free (ie, neither gain nor loss is reported) when it is exchanged for similar property. Although a gain is not recognized, the realized gain is deferred until the received property is disposed (eg, sold). The realized gain is the difference between the FMV of property (including boot) received and the adjusted basis of property (including boot) given. Qualified properties in an LKE are rarely equal in FMV. To make an exchange between two parties fair, a taxpayer may give or receive additional consideration (ie, boot). If a taxpayer receives more boot than given, it is possible that the taxpayer effectively converted (ie, liquidated) a portion of the property's unrealized gains into cash or into a substantially different asset, which would trigger a taxable gain. To determine if the excess boot triggered a recognizable gain, the taxpayer must figure the realized gain or loss. CP Notes: Like kind exchanges are normally not taxable, but taxable up to boot received.
Shot term capital gains should be netted with...
Short term capital losses
How does the 1245 depreciation recapture work?
Since the depreciation deductions were ordinary deductions, the tax code requires that the gains be reported as ordinary income to the extent of prior depreciation. The Section 1245 recapture is the lesser of two amounts: the accumulated depreciation or the realized gain. Any gain exceeding the recapture amount is the result of the property's appreciation above its original cost and is treated as a Section 1231 gain, which is generally treated as a capital gain.
What tax rates apply to long term capital gains?
Special tax rates apply (0%, 15% and 20%) for individuals, but not corporations.
What is the holding period of a short sale?
Taxpayers who believe a stock price will decrease can use a short sale in the hope of realizing a gain by "selling high" and then "buying low." A short sale is executed by selling borrowed stock and involves four steps. Borrow stock from a broker for a fee. Sell the borrowed stock at market price (ie, open the short sale) to obtain cash. Purchase substantially identical property (ie, cover the short sale) later at a lower price using cash from the sale. Deliver substantially identical property back to the broker (ie, close the short sale). Gain or loss on a short sale is calculated in the usual manner for a capital asset (sales proceeds − adjusted basis); however, a gain or loss is not generally recognized until the short sale is closed. The holding period used to classify the sale as short-term or long-term is determined in the usual manner using the purchase (ie, cover) as the acquisition date and the delivery as the disposition date.
How do you tax appreciated property that is received as a gift?
The donee applies the donor's basis in the property and the donor's holding period. Gertrude will recognize a gain for $11,000 (sold amount) - $7,500 (carried over basis from the gift) or $3,500. The holding period will be from 20X1 until the sale on October 1, 20X3, making it a long-term capital gain.
How is gifted stock treated?
The person receiving pays no tax at the time of gifting, but must carry over the same basis
How does 1244 stock affect the reclassification of ordinary and capital loss?
To incentivize investment in small business, a loss on Section 1244 stock allows individuals to reclassify part a capital loss to an ordinary loss (ie, no $3,000 limitation). The statutory amount reclassified as an ordinary loss is $50,000 ($100,000 if married filing jointly). Any excess remains a capital loss. In this scenario, the individual has potential $65,000 ($25,000 − $90,000) Section 1244 loss. However, only $50,000 can be treated as an ordinary loss. The remaining $15,000 ($65,000 − $50,000) is netted with the other capital gains and losses to produce a $13,000 capital loss, which is limited to $3,000. Therefore, the individual can deduct a $50,000 ordinary loss and a $3,000 capital loss. The remaining $10,000 ($13,000 − $3,000) loss is carried forward to future tax years. Things to remember:A net capital gain (loss) is the combination of all capital gains and losses during the tax year. If the result is a net capital loss, the deduction is limited to $3,000. Up to $50,000 ($100,000 if married filing jointly) of losses from Section 1244 stock (ie, qualified small business stock), can be reclassified as an ordinary loss. Any excess is netted with the other capital gains (losses).
What are the rules around property sales or exchanges between related parties?
To prevent taxpayers from artificially creating tax losses by selling and exchanging property among family members, losses on the sale or exchange of property are disallowed for transactions between related parties (eg, family members). Instead, the acquiring relative may later deduct the disallowed loss upon subsequently selling the property to an unrelated party. However, this deduction is limited to any gain on the subsequent sale. Things to remember:Taxpayers cannot recognize a loss on the sale of property to a related party (eg, family member). However, the acquiring related party may deduct this loss from any gain, but not below $0, on the subsequent sale of the property to an unrelated party. Conversely, the deduction cannot be used to increase a subsequent loss.
What is a short sale?
Typically, a short sale is a speculative stock trade used by investors believing a stock's price will decline. A short sale can also be used to protect current, unrealized gains of stock already owned. A taxpayer hedging against a price decrease can sell borrowed identical stock (ie, open a short sale) to receive cash and guarantee current, unrealized gains. If the price decreases, the taxpayer can either deliver the taxpayer's own stock or purchase replacement stock to close the short sale. If a taxpayer already owns identical stock when opening a short sale, the IRS treats the opening transaction as a sale of the taxpayer's stock, not a sale of the borrowed stock (ie, not treated as a short sale), and any gain or loss must be recognized at this time. This mean the taxpayer will have a short term capital gain/loss when the tax payer issues the short.
What is section 291 accelerated depreciation for C corps only? Example: A sole proprietor owned an office building with a cost of $100,000 and accumulated depreciation of $28,000 using straight-line depreciation under modified accelerated cost recovery system. If the company sold the building for $110,000, what is the unrecaptured Code Section 1250 gain from this transaction?
Under Sec. 291, a C corporation calculates the difference between the amount of depreciation recaptured under Sec. 1250 (ie, "additional depreciation" to the extent of gain) and the greater amount that would have been recaptured if the asset had been a Sec. 1245 asset (ie, all depreciation to the extent of gain). Answer: $28,000 Upon selling the building, a gain of $38,000 [$110,000 sales price − ($100,000 cost − $28,000 accumulated depreciation)] was recognized. Because the straight-line method was used, there is no additional depreciation to recapture (ie, no ordinary income). Of the remaining recognized gain, $28,000 (the lesser of the $38,000 remaining recognized gain or the $28,000 straight-line depreciation) is treated as an unrecaptured Section 1250 gain. The remaining $10,000 gain is treated as a Section 1231 gain
Under section 263, how much can you expense instead of capitalizing?
Under section 263, an entity may deduct the cost of an item of property up to either $5,000 per invoice, or $5,000 per item. For example, if a company is purchasing 4 items for $18,000, the price per item is $4,500, which is below the $5,000 safe harbor, therefore all $18,000 may immediately be expensed. If the property had a useful life of 12 months or less, it could also be immediately expensed.
How are inheritances usually taxed?
Usually non-taxable, asset's basis is moved up to FMV.
What should you know about 1033 gains, or gains from involuntary exchanges?
When the taxpayer realizes a gain from an involuntary conversion (Sec. 1033 exchange) of property, the gain may be deferred if the property is replaced within the statutory time limit established by law. It will be measured from the end of the calendar year. Time limit: 2 years - Destruction or theft of property resulting in insurance recovery. 3 years - Government condemnation or eminent domain award. 4 years - Conversion in connection with a federally declared disaster.
Can you be taxed on related party gains?
Yes
Do you need to report short term and long term capital gains separately?
Yes
Can you combine a capital loss with a 1244 ordinary capital loss in order to determine your total deduction from ordinary income?
Yes you can.
Can a corporation deduct a net capital loss against a net capital gain?
Yes- Loss may be carried back to offset net capital gains in one of previous 3 tax years, and then carried forward to offset net capital gains in the next 5 tax years. If one is a net gain and the other is a net loss, they are combined to produce a single net capital gain or loss for the year, which will be treated as having the character of the larger of the two numbers being combined.
Can short term capital losses offset long term capital gains?
Yes- You offset the loss with the gains which have the highest to lowest tax rate (descending order 30%-20%-15%...) Example: a $70k ST loss could offset the loss would offset the $10,000 of collectibles gain (@ 28%), and then the $56,000 of unrecaptured Section 1250 gain (@ 25%). Finally, the loss would offset $4,000 of the long-term gain (15% rate) leaving only $16,000 of gain taxed at 15%.
Are amounts paid to improve tangible property required to be capitalized? (BAR)
Yes: You must capitalize if.... Betterment: In order for a cost to result in a Betterment, the expenditure must be used to correct a defect that existed prior to acquisition or occurred during production. Adaptation: An Adaptation of the property is considered a new or different use that is inconsistent with the taxpayer's intended, ordinary use of the property at the time it was originally placed into service. Restoration: Costs of Restoration (restores basis, replaces part or a major component of the property) are required to be capitalized if they would be required to be capitalized if incurred for purposes other than restoring property.
Can you expense incidental materials/supplies?
Yes; But usually must cost less than $200 and have a useful life of less than 1 year
See example problem of acquired property basis: A taxpayer exchanged investment real estate with a $375,000 fair market value (FMV), a $125,000 adjusted basis, and a $75,000 mortgage for similar investment property with a $260,000 FMV that was subject to a $40,000 mortgage, which the taxpayer assumed. In addition, the taxpayer received $50,000 cash and a vehicle with a $30,000 FMV, and the other party assumed the $75,000 mortgage. How much gain did the taxpayer recognize on the exchange, and what is the basis in the new real estate?
[1] Calculate the boot given and boot received. Boot given is the liability I now assume (mortgage assumed). Boot received is all the stuff that has value (cash, and other FMV).
How much gain should you recognize in a like-kind-exchange with the consideration of boot?
[1] Your new real estate's basis will be the given property's adjusted basis. [2] Calculate the net amount of boot; The boot you received and the boot you have given. [3] A gain on LKE are limited to the net amount of boot received or the realized gain.
See example problem of acquired property basis, part 2:
[2] calculate the total realized gain. You will recognize a gain in the amount of the lesser of the boot received or the realized gain Here: $115k is less than $250k.
What if the value of the property on the date of the gift is lower than the donor basis?
Must follow the Dual Basis Rules: 1) The higher donor basis is used to calculate a subsequent gain on sale. 2) The lower FMV on the gift date is used to calculate a subsequent loss on sale. 3) If the selling price is between the two amounts, no gain or loss is recognized. The effect is to not tax the donee on gains to the extent the donor suffered a nondeductible loss.
How much of your net capital loss is deductible as an individual?
Net capital loss of $3,000 ($1,500 MFS) is deductible against ordinary income. Short-term losses are claimed first.
Can a corporation deduct a net capital loss against their ordinary income?
No
As an individual, can you carry your net capital loss backwards?
No carryback is allowed but can carry forward indefinitely. Carryforwards retain their character as short term or long term.
Would you ever classify inherited assets as S/T?
No- Always long term
Would you ever classify non-business bad debts as long term?
No- Always short term
Under TCJA, for 2018 and beyond, can business property such as machinery, trucks, equipment qualify as a like-kind-exchange?
No. A like-kind exchange is said to have occurred when property used in a trade or business, or held as an investment, is exchanged for other property of the same type.
What is a section 291 depreciation recapture?
In general, Section 1231 property includes depreciable assets and land used in a trade or business for more than one year. Section 1231 assets include Section 1245 assets (ie, personal property) and Section 1250 assets (ie, real property). Over the life of the assets, depreciation (or amortization) deductions are taken, which reduces ordinary taxable income. To encourage investment in assets, net section 1231 gains are treated as long-term capital gains, whereas net section 1231 losses are treated as ordinary losses. This preferential treatment allows gains to offset any capital losses while losses are fully deductible. However, a portion of the gain is the result of prior depreciation deductions (ie, ordinary) and must be recaptured (ie, reclassified). For C corporations selling Section 1250 property, 20% of the lesser of the accumulated depreciation or the realized gain is reclassified as ordinary income under Section 291. Any remaining gain is generally long-term capital gain (ie, Section 1231). This provision was legislated in the early 1980s to ease budget deficits and offset previous increases in accelerated depreciation. If the total gain is less than the accumulated depreciation than a recapture must happen for 20% of the total gain.
What is "additional depreciation" when considered the 1250 depreciation for real property?
It is the difference between S/L and accelerated.
Long term capital gains should be netted with...
Long term capital losses
How do you account for a boot in a 1031 exchange?
Look at section 7.05. A bit complicated
How are your deposit losses on insolvent banks treated?
deductible up to $3,000
