unit 2

adjusted basis formula

costs + applicable costs to get asset ready + capital improvements - depreciation

real vs. personal property

affixed to land; movable

purchase (basis and holding date)

cost, purchase date

gift (basis and holding date)

NBV, donor holding period

exception: if NBV > FMV —> then whatever is closest to sales price and if in between, then it’s sales price. gains (donor holding) and losses (gift date)

inheritance (basis and holding date)

FMV (unless AVD then FMV at the earlier of 6 months from death or distribution/sale date), always LT

items to cap vs. expense

cap: useful life >1 year, improvements

exp: repairs, incidental materials (<$200), de minimis

applicable financial statements benefit

expense individual items under $5K. if no AFS, items only expensed if under 2.5K

basis for converted property (personal to business)

depreciation basis: min[FMV, cost]

G/L basis:

(L) = min[FMV, cost] - depreciation

(G) = cost - depreciation

section 197 provision

purchased intangibles will have to allocate lump sum amount (to acquisition of the business, not separately identifiable), amortized over 15 years

R&E cap/exp rules

must be domestic.

can cap and amor over 5 years, over 1-2 years (if in 2022-2024), or retroactively deduct everything after 2021 (if small business under gross receipts threshold)

purchased intangibles basis and amortization period

basis = cost (legal, development fees) - lump sum (goodwill)

period: remaining life

org and startup rules

each can be deducted by 5K (with 1-1 phaseout above 50K). amortize over 15 years

org and startup cost examples

org: legal, accounting, filing, cost of meetings (NOT equity)

startup: investigation, hiring, distribution, facility

section 1202 vs. 1244 QSBS

1202: gains, where you would exclude % of gain (28% otherwise)

1244: losses, where these would be considered ordinary income

capital vs. ordinary type items

capital: investment, personal use (preferential rates)

ordinary: used in trade/business

net capital loss (net operating loss does not exist for an individual) rules

max of 3K per year, forward indefinitely

capital netting process

1) group the categories (ST, LT collectibles (28%)/QSBS, LTCG)

2) net ST to LT collectible/QSBS

3) net ST to LT capital G/L

personal residence rules

if used 2 of past 5 years, gains can be excluded

nondeductible losses (WRaP)

wash sales, related party transactions, personal property

wash sales explained

if shares were sold at a loss, but they (identical stock) were purchased again within 30 days of sale, then no deduction for loss applies. gains still apply, FIFO basis [realized vs. recognized loss]

section 1231

property used in business (real and personal) will be considered capital gains and ordinary losses

depreciation length and convention for real property

residential: 27.5, mid month

non residential: 39, mid month

personal property 5 year examples

cars, light trucks, computers, copiers

personal property 7 examples

furniture, fixtures, machinery

determine convention for personal property

half year, unless >40% of property purchased in last quarter —> then mid quarter

section 179 vs. bonus vs. qualified production property depreciation

section 179: purchased personal property or real property improvement. cap and 1-1 phaseout, same depreciation basis as normal depreciation

bonus: total amount

qualified production property: if after 2025, only for production property (not restaurants)

not allowable if it increases a loss

loan costs basis and amortization period

basis = cost - amortization

period: life of loan

MACRS depreciation…

does NOT consider salvage value