REG 7 - Property & Special Property Tax Transactions
A building was purchased for $350,000 and insured under a $300,000 fire insurance policy containing an 80% coinsurance clause. Several years later, the building, having a fair market value of $500,000, sustained fire damage of $40,000. What is the amount recoverable from the insurance company?
A coinsurance clause requires the policyholder to purchase an amount of insurance equal to the fair market value (FMV) of the property multiplied by a specified percentage. Here, the FMV of the property is $500,000 and the specified percentage is 80%. Thus, the policyholder must have a $400,000 insurance policy ($500,000 x 80%). However, the policyholder only insured the building for $300,000. This means the insurance company will only reimburse the policyholder for a fraction of equal to the actual amount insured divided by the required amount of insurance. The insurance company will reimburse the policyholder for $30,000 ($40,000 x [$300,000/$400,000]).
In 2011, Danielson invested $2,000,000 in DEC, a qualified small business corporation. Six years later, in 2017, Danielson sold all of the DEC stock for $16,000,000, and purchased an office building with the proceeds. Danielson had not previously excluded any gain on the sale of small business stock. What is Danielson's taxable gain after the exclusion? $6,000,000 $0 $9,000,000 $7,000,000
A noncorporate shareholder who holds qualified small business stock for at least five years is eligible to exclude 100% of the gain on the sale of the stock. Danielson realizes a $14,000,000 gain ($16,000,000 - $2,000,000), but does not have to recognize any of the gain due to the 100% exclusion. Note: This Section 1202 exclusion for qualified small business stock was increased from 50% to 75% for stock acquired after February 17, 2009, and before September 28, 2010, and was further increased to 100% for stock acquired after September 27, 2010. This exclusion was made permanent by the 2015 PATH Act.
For a cash basis taxpayer, gain or loss on a year-end sale of listed stock arises on the Trade date. Settlement date. Date of receipt of cash proceeds. Date of delivery of stock certificate.
A special rule for listed securities causes gains or losses to be realized on the trade date. The date of delivery of the physical securities would never be considered the appropriate date of sale for a cash basis taxpayer.
Which of the following sales should be reported as a capital gain? Sale of equipment. Government bonds sold by an individual investor. Real property subdivided and sold by a dealer. Sale of inventory.
Capital assets include all assets except: inventory, business receivables, self-created artistic works, and depreciable property and land used in a business. Agovernment bond held by an individual investor is a capital asset.
In Year 1 Keller, an individual, purchased depreciable real property for $80,000. In Year 5 Keller sold the property for $100,000. At the time of sale the property had a basis of $30,000 due to $50,000 depreciation taken during the holding period. Of the depreciation taken, $30,000 is in excess of the amount that would have been taken under straight-line depreciation. Keller is in the 15% long-term capital gain tax bracket. Which will be the net gain (loss) reported by Keller and at what applicable tax rate(s)?
Depreciable real property is subject to section 1250 deprecation recapture. Under section 1250, any gain, to the extent of excess depreciation, is taxed as ordinary income with the excess considered a section 1231 gain, taxed as a long-term capital gain. With a sales price of $100,000 and a tax basis of $30,000, the total gain is $70,000. The $30,000 in excess depreciation will be taxed as ordinary income and the remaining $40,000 will be taxed at Keller's rate 15% rate on long-term capital gains.
Which of the following costs are subject to the Uniform Capitalization Rules of Code Sec. 263A for manufactured tangible personal property? Off-site storage. Research. Advertising. Marketing.
Direct materials, direct labor, and applicable indirect costs must be capitalized under the uniform capitalization rules (UNICAP). Off-site storage costs are considered an applicable indirect cost that must be capitalized.
In year 1, a taxpayer sold real property for $200,000, receiving $100,000 at closing and $100,000 plus accrued interest at the prime rate in the next year. The buyer also assumed a $50,000 mortgage on the property. The taxpayer's adjusted basis was $75,000, and the taxpayer incurred $10,000 of selling expenses. If this transaction qualifies for installment sale treatment, what is the gross profit on the sale?
Gross profit is equal to the amount realized less the basis of the property sold. The taxpayer's amount realized is equal to the cash received for the property, plus the mortgage he was relieved of (that is, the amount of debt-relief), less the selling expenses. The amount realized is $240,000 ($200,000 + $50,000 - $10,000). The basis of the property sold is $75,000. Thus, the gross profit on the sale is $165,000 ($240,000 - $75,000).
Joe purchased a van for $30,000 on February 1, 20X4, for use with his business, Crew Airport Transport. Joe elected to take the Section 179 deduction. On January 1, 20X6, Joe sold the van for $20,000. What were the tax effects of this transaction? $20,000 capital gain $10,000 loss $10,000 capital gain, $10,000 ordinary gain $20,000 ordinary gain
Having taken the Section 179 deduction, which would have been for the entire $30,000 cost of the van, Joe had a $0 basis in the van when it was sold for $20,000, resulting in a gain. Since the van is tangible personal property used in a trade or business, it is subject to section 1245, which requires that any gain, to the extent of depreciation previously deducted, be treated as an ordinary gain. Joe will report an ordinary gain of $20,000.
Among which of the following related parties are losses from sales and exchanges not recognized for tax purposes? Brother and sister. Uncle and nephew. Ancestors, lineal descendants, and all in-laws. Mother-in-law and daughter-in-law.
Losses from the sale or exchange of assets are not deductible when sold to certain related parties, which include husbands and wives, sisters and brothers, parents and children or grandchildren and grandparents, ancestors and descendants, and majority shareholders or partners and the related corporations or partnerships. They do not include aunts, uncles, nephews, nieces, or in-laws.
Lobster, Inc. incurs the following losses on disposition of business assets during the year: Loss on the abandonment of office equipment $25,000 Loss on the sale of a building (straight-line depreciation taken in prior years $200,000) $250,000 Loss on the sale of delivery trucks $15,000 What is the amount and character of the losses to be reported on Lobster's tax return? $290,000 Section 1231 loss. $40,000 Section 1231 loss, $250,000 long-term capital loss. $40,000 Section 1231 loss only. $40,000 Section 1231 loss, $50,000 long-term capital loss.
Section 1231 assets are, by definition, assets that are used in a trade or business and held for more than one year. The office equipment, building, and delivery trucks are all Section 1231 assets because they were used in Lobster's business. Lobster has a $290,000 Section 1231 loss ($25,000 + $250,000 + $15,000).
The following apply to Cushing, a single individual: •In January of Year 2, Cushing inherited from her parents Section 1244 stock, which had cost her parents $10,000 and was worth $17,000 at time of inheritance. Later in Year 2, the stock became worthless. •In July of Year 2, Cushing sold for $10,000 stock acquired by Cushing in December of Year 1 for $7,000. •In May of Year 2, Cushing sold for a $10,000 loss Section 1231 property Cushing had acquired in November of Year 1. As a result of the above, what amount of loss offsetting ordinary income can Cushing declare in Year 2?
Since Cushing was not the original purchaser of the section 1244 stock, the loss would not qualify to be taxed as ordinary and would be a long-term capital loss of $17,000. This will be netted against the $3,000 short-term capital gain, resulting in a net capital loss of $14,000, of which $3,000 may be offset against ordinary income. In addition, the $10,000 loss on section 1231 property would be taxed as an ordinary loss resulting in a total of $13,000 offsetting ordinary income.
Gibson purchased stock with a fair market value of $14,000 from Gibson's adult child for $12,000. The child's cost basis in the stock at the date of sale was $16,000. Gibson sold the same stock to an unrelated party for $18,000. What is Gibson's recognized gain from the sale?
The child realizes a $4,000 loss on the sale of stock to Gibson ($12,000 proceeds - $16,000 cost basis). This is a related-party sale because the sale is between a parent and a child, so the loss is disallowed and the child cannot recognize the $4,000 loss. Gibson assumes the original cost basis of $12,000 in the stock. When he sells the stock for $18,000, he realizes a $6,000 gain ($18,000 - $12,000). He is able to reduce this gain by the $4,000 loss that was previously disallowed to his child. Thus, Gibson recognizes a $2,000 gain ($6,000 - $4,000).
An individual had the following gains and losses for the year: Short-term capital loss $30,000 Section 1231 loss $20,000 Long-term capital gain (unrecaptured Section 1250 at 25%) $18,000 Collectibles gain (28% rate) $20,000 Long-term capital gain (15% rate) $15,000 What will be the net capital gain (loss) reported by the individual and at what applicable tax rate(s)? a) Long-term gain (unrecaptured Section 1250) of $3,000 at 25% and collectibles gain of $20,000 at 28% rate. b) Collectibles gain of $3,000. c) Long-term gain (unrecaptured Section 1250) of $8,000 at 25% and long-term gain of $15,000 at 15%. d) Long-term gain of $3,000
The section 1231 loss is treated as an ordinary loss and does not affect the amount of capital gain or loss recognized. Capital losses will be offset against capital gains, beginning with the gains taxed at the highest rates. As a result, the entire $20,000 gain on collectibles will be offset, leaving a loss of $10,000. It will next be offset against the $18,000 unrecaptured section 1250 gain. The excess $8,000 will be taxed at the 25% rate and there is no loss to offset against the long-term capital gain taxed at 15%, leaving the entire $15,000 gain taxable at 15%.
In Year 1, Gardner used funds earmarked for use in Gardner's business to make a personal loan to Carson. In Year 3, Carson declared bankruptcy, having paid off only $500 of the loan at that time. In Year 1, Gardner purchased equipment for use in Gardner's business. In Year 3, Gardner sold the equipment at a $5,000 loss. In January of Year 3, Gardner received shares of stock as a gift from Smith; the shares had been purchased by Smith in Year 1. In November of Year 3, Gardner sold the property for a $5,000 gain. Which of the above transactions will Gardner report as long-term capital gains or losses for Year 3? I.The bad debt write-off II.The sale of equipment III.The sale of shares
The uncollectibility of a personal loan represents a nonbusiness bad debt, which is treated as a short-term capital loss, regardless of the holding period. Depreciable business property is section 1231 property and losses on sale are treated as ordinary, not capital losses. Shares received by gift will retain donor's holding period and basis. Since the share had been purchased by the donor more than 1 year before their sale, the result would be a long-term capital loss.
The Uniform Capitalization Rules of Code Sec. 263A apply to retailers whose average gross receipts for the preceding three years exceed what amount?
The uniform capitalization rules apply to retailers whose average gross receipts for the preceding three years exceed $10,000,000.
Under the uniform capitalization rules applicable to property acquired for resale, which of the following costs should be capitalized with respect to inventory if no exceptions are met? Both marketing costs and off-site storage costs. Marketing costs. Off-site storage costs. Neither marketing costs nor off-site storage costs.
The uniform capitalization rules require that all costs of purchasing, manufacturing, and holding property acquired for resale be capitalized. Marketing costs do not fit any of the categories requiring capitalization, but off-site storage costs are a cost of holding property, and must be capitalized.
Roger Corporation purchased 4 pieces of similar office furniture for $18,000 in 20X1. How much can Roger Corporation expense in the year of purchase under IRC 263, de minimus capitalization regulations?
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. In this case, since they are 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.
In Year 3 Daniels, an individual, sold Section 1245 property for $21,000 that had an adjusted basis of $12,000, resulting in a $9,000 gain. The property had cost Daniels $20,000 when purchased in Year 1, and $8,000 of MACRS depreciation had been taken. How should Daniels report the gain on Daniels' Year 3 tax return? As an ordinary gain of $7,200 and a long-term capital gain of $1,800 As an ordinary gain of $1,800 and a long-term capital gain of $7,200 As an ordinary gain of $8,000 and a long-term capital gain of $1,000 As a long-term capital gain of $9,000
When section 1245 property is sold at a gain, all depreciation previously reported will be recaptured, resulting in an ordinary gain. The remainder, if any, will be long or short-term capital gain, depending on the holding period. Daniels will recapture all $8,000 in depreciation taken resulting in an ordinary gain in that amount. The remainder, $9,000 - $8,000 or $1,000 will be long-term capital gain.
Benson exchanged a van, used exclusively for business and with an adjusted basis of $100,000, for a new van with a fair market value of $120,000 and received $5,000 in cash. What amount of gain did Benson recognize from the transaction? $20,000 $5,000 $0 $25,000
When tangible business property is exchanged for similar property in a like-kind exchange, neither gains nor losses are reported other than gains to the extent of boot, or unlike property, is received. Since Benson is receiving property worth a total of $125,000 in exchange for the van with a basis of $100,000, there is a gain of $25,000, only $5,000 of which, representing the cash or unlike property received, will be taxable.
