[REG] Transactions in Property

Inventory	Sch1, Sch C, Sch F
Investment	7. CG/L
Biz property	Sch1 other G/L

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1. Tax considerations in property transactions

 

Amount realized(selling price)? Cash / FMV property received / Liability assumed
Basis of property sold or exchanged? 
Type of property has been sold or exchanged? Personal / Investment / Business
Character of the gain or loss?
Holding period of the property begin? Fresh holding period / Tacked-on holding period

 

2. Basis and holding period of property

 

1) Basis of property purchased

         Cash paid

    (+) Debt incurred  

    (+) Related expenses    

          Basis

     * Holding period begins on date of purchase(Fresh holding period)

 

2) Basis of property received from Donor

* Gifted property basis for depreciation > Use the lesser of the B, FMV for depreciation basis

 

Case1: Gift of property incline in value (B<FMV, General rule)

     Donee's Basis = Donor's Basis

     (Transfer Basis)

 

     SP       80K

     B       <50K> holding period, tracked on the transfer holding period

     LTCG  30K

 

  Case2: Gift of property decline in value (B>FMV, exception)

Gain (B<SP)	Donee's basis = Donor's basis	Donor's holding period	Donee sold the stock for $103K on 7/15/2019 SP 103K           SP 103K B <100K>           B <30K> CG   3K             CG 73K
Loss (SP<FMV)	Donee's basis = FMV of gift	HP: date of the gift	Donee sold the stock for $28K on 7/15/2019 SP  28K            SP  28K B  <30K>           B <100K> CL<2K>           CL <72K>
No G/L (FMV)	FMV < SP < Donor's basis Donee's Basis = SP M            -------->       D FMV 100K            FMV 30K 5yrs 100K Donor's B           SP 30K   FMV	No G/L, No HP	Donee sold the stock for $50K on 7/15/2019 SP  50K   B  <50K>         0

 

3) Basis of property received by inheritance

* Inherited property is considered LT property

    - Decendent   ->   Estate of Decedent

    Cash+FMV         Estate tax (40%) on Cash+ FMV of property

   - Alternate valuation date, 6M after the date of death

    FMV on AVD < FMV on DOD, can be elected

    a) AVD not elected, Heir/Beneficiary's basis in inhered property = FMV of Date of Death

      SP 16M

      B <15M>

      G  1M

    b) AVD elected, heir/B's basis = earlier of FMV of AVD or FMV of distributed  

 

   - Income in respect of decedent(IRD)

     cash basis, decedent

     income earned, not collected

     not included in descendants F1040

     recipient of IRD income reports, as the same type of income, in the year of collection

 

4) Basis of stock dividend/right received

Taxable stock dividend	Basis for income reported	Basis, FMV on date of distribution, HP distribution date
Nontaxable stock dividend	CS dividend on CS SH	Original B allocated based on FMV on the date of distribution HP original date

Nontaxable stock Basis allocation

	SH	AMT	Basis
CS	100	12K	9K	12K * 15K/(15K+5K) = 9K
PS	10	0	3K	12K * 5K/ (15K+5K) = 3K

     

 

5) Property converted from Personal to business use

same as gifted property, the basis for depreciation is the lessor of the original cost basis / FMV

 

3. Gain or Loss in a taxable transaction

       

        Money received

     + FMV of property received

     + Liability discharged

        Amount realized

     - Money paid

     - AB of property given up

     - Liability assumed

       Gain or loss realized and recognized

 

 

4. Gain or loss in a nontaxable transaction
( Like-kind exchange, Involuntary conversion, Sale of primary residence)

   

Like-kind exchange (sec 1031)

    1) no gain or loss is recognized on the exchange of real property

       - Real property(residential and non-residential real property, land) located in US, in investment or used in business

         * Personal use, inventory, and foreign real property not included

    2) Boot received, realized gain > min(gain realized, boot received)

    3) Like-kind exchange, Formula

          FMV of real property received

       + Boot received (Money received, FMV of not like-kind property, Liability relieved)

          Amount realized

        - Basis of real property given up

        - Boot paid (Money, Basis of not like-kind property, Liability assumed)

          Gain realized

 

          Gain recognized, min(gain realized, boot received)

          * Any gain realized but not recognized is a deferred gain

 

4) Basis of like-kind property received

   Basis of property given up                                           FMV like-kind property received

+ Gain recognized                                                          - Gain not recognized(deferred)

+ Boot paid                                        or                          Basis of like-kind property received    

- Boot received

  Basis of like-kind property received

 

5) non-like-kind given, G/L is recognized, FMV- Basis

6) Replacement requirement

   non-taxable transaction, like-kind property > must be replaced within 180 days, not later than the tax return due date

 

 

Involuntary conversion (sec 1033)

1) Cash or other property is received (from Gov, the insurance co), personal/real property destroyed or condemned

2) Cash/property received > Basis of property given up

Gain not recognized > Similar property purchased within the replacement period

Gain recognized > Any of reward not reinvested

 

3) Cash property received < AB of property

    Loss is recognized

    * property held for personal use

 

4) Replacement requirement

personal property	replacement made within 2yrs(last day of taxable Y, gain is first realized)
real property	replacement made within 3yrs(last day of taxable Y, gain is first realized)

 

Real property AB 20K, condemned by county, Cash 24K 

reinvested 21K, Gain? Basis for new?

Gain FMV                   21K Boot                   3K amount real       24K Basis               <20K> Gain realized     4K Gain recognized 3K

Basis for new B of property given up         20K Gain recognized                    3K Boot received                     < 3K> Basis in replaced property   20K

 

 

 

Sale or exchange of principal residence(sec121)

1) Up to 500,000 of gain for MFJ(single 250,000) excluded from sale of principal residence

2) Requirements

Principal residence > must be owned+occupied for 2/5yrs

* occupancy period not met, due to the following change of > Amount of exclusion pro-rated

     employment, health, unforeseen circumstance(involuntary conversion,natural disaster)

* Loss from sales of residence, not deductible as a personal loss

 

5. Sales and exchange of securities

 

1) Exchange of stock of the same corporation

Nontaxable exchange - CS for CS - PS for PS

Taxable exchange - CS for PS - PS for CS

 

* Securities sold cannot be identified, fifo is used to determine the basis

 

2) Wash sale: 12월말에 판매해서 연말소득을 줄이는 걸 막기위해

- When stock or securities are sold for loss + repurchased within 30days before/after the sales

- Loss, not deductible, added to AB of new stock/securities purchased

- Not apply to dealers in stock and securities

- HP: include HP of old stock 

 

6. Losses from related party transaction

 

1) Related party

  - Family: 0촌: spouse 1촌 Parent(grand), child, 2촌: brothers/sisters

  - corporation more than 50% SH

  - Parent + subsidiary corp

  - same person owns more than 50%

  - constructive stock ownership

 

2) Loss is not deductible, deducted up to gain recog (unrelated party) 

 

3) corp and controlling party

  - Corp. < controlling SH가 서비스를 제공한 거래: SH가 수익을 인식한 시점에 Corp는 비용을 deduct할 수있다.

  - Corp > controlling SH에게 property를 distribution한 경우: gain이면 차액을 인식, loss는 인식할 수 없다.

 

7. Capital gains/losses

1) Capital Assets

Capital Assets	Not Capital Assets
- investment property - property held for personal use - intangibles(goodwill)	- stocks in trade, inventory - amount received for an agreement not to compete - AR or NR arising from business activities - Personal/ real property used in a trade or business   (depreciable property

 

2) Holding period

Short term, HP <1yrs

Long term,  HP >1yrs

 

3) Tax rates for capital gain for individuals

LTCG, individual, 15% * taxpayer 10%~12%, no tax on LTCG * taxpayer 35%~37%, 20%

STCG, individual, 37%

 

4) Capital loss(sch D)

netting of capital gains and losses --> net capital loss

Individual - Capital losses, only be deducted against capital gains - Net capital loss, deducted up to $3K - Excess capital losses, carried over indefinitely - Capital loss carryovers retain same id as ST/LT

Corporations - Capital losses, only de ducted again capital gains - Net capital loss, not deductible - Excess capital loss, carry back3yrs, carried over 5yrs - capital loss carrybacks/ carryovers are treated as ST

* loss from sale of personal use property, not deductible personal loss

 

STCL      <5K>

STLG        1K

STCL      <4K>

deductible 3K

CL c/o       1K

 

5) Worthless stock and securities > capital loss to the individual taxpayer, as if sold at YE 

 

6) Losses on deposits in insolvent financial institutions > STCL, regardless of the length of deposit

 

8. Gains and losses on business property

Biz property

HP<1	Gain	ordinary income(max 37%)
	Loss	ordinary loss(max 37%)
HP>1 sec 1231 property Biz use + 1yrs	Gain	Personal property (sec 1245 recapture)	SP = Cost(ordinary) + remaining(LTCG) 1) 1245 recapture: ordinary income, cost, extent of prior depreciation 2) 1231 G: LTCG
		Real property (sec 291 recapture)	Individual 1231 G: LTCG	Corporation 1) 291 recapture, ordinary income, SL depre 20% 2) remaining 1231 G, LTCG
	Loss	Sec 1231 loss, ordinary loss * sec 1231 losses offset sec 1231 gain

 

* Personal property, Sec 1245 recapture

Prior Y depreciation + Ordinary income recapture

 

 

* Real property, Sec 291 recapture

 

 

* Sec 1231 recapture

LTCG > extent of unrecaptured loss for the last 5yrs: ordinary gain

 

 

9. Installment sales

 

spread the gain over the collection period using the gross profit ratio

Gross profit ratio = Gross profit / Contract price

* sec 1245 not available for installment reporting, must be recognized in the Y of sale

* cannot be used for property held for sale in the ordinary course of business/ sale of stock or securities

 

 

 

 

Property

Capital Asset
	Gain	investment CG	Personal Use CG
	Loss	Investment CL	Personal Use non-deductible
Business property
HP<=1	Gain	Ordinary income
	Loss	Ordinary loss
HP>1 (sec1231 property)	Gain	Personal property	SP>Cost sec 1245+sec1231 (ordinary G + LTCG)	SP<Cost sec 1245(ordinary G)
		Real property	Individual sec 1231 (LTCG)	Corporation Sec291+Sec1231 (ordinary G + LTCG)
	Loss	sec 1231 loss(ordinary)

 

 

10. Purchasing property for a business

Improvements(capitalize)

Repairs and maintenance

Materials and supplies 200 or less

 

Deminis safe harbor rule

- with AFS deduct up to 5000 per item

- without AFS deduct up to 2500 per item

 

 

Property converted from personal to biz use

Tax basis for depreciation lessor of NBV or FMV

Tax basis for G/L if the property is sold First, the lessor of  adj basis: original cost basis - depre or FMV Second, reduce the lessor amount by any depreciation deductions taken after the conversion to biz

 

 

Organizaiton cost: legal, accounting filing meetings (* not stock issuing)

first 5K 

 

Startup cost

first 5K

 

cost not expensed capitalized as intangible and amort over 15yrs