ACTG 450 Final

How do you calculate the net fair market value?

Fair Market Value of Assets

- Mortgage

+ Cash Needed

= Net Fair Market Value

What is the tax formula?

Gross Income

<Adjustments to Gross Income>

= Adjusted Gross Income

<Itemized Deduction>

<Qualified Business Deduction>

<Exemptions>

= Taxable Income

* Tax Rate

= Tax Liability

<Credits>

+ S/E Tax

+ Med. Tax

+ Alt. Min Tax

+ Net Investment Income Tax

= Tax

How do you calculate the realized gain?

Fair Market Value

- Adjusted Basis

= Realized Gain

How do you calculate the recognized gain?

Cash Received

+ Reduction in Debt

= Recognized Gain

How do you calculate the “check” park of a tax free calculation?

Recognized Gain

+ New Fair Market Value

- New Adjusted Basis

=/+ Future Gain

= Realized Gain

Code Sec. 1033

involuntary conversions occurring through casualty, theft or condemnation

What is qualifying like-kind property for involuntary conversions?

replacement property must be used in substantially the same way as the involuntary conversion property

What are some mandatory rules for involuntary conversions?

• if the award is like-kind property, no gain is recognized

• losses from business or income producing property are recognized

What are the two time limitations for involuntary conversions?

earliest date to replace and latest date to replace

Explain earliest date to replace involuntary conversion

earlier of:

• date of acquisition of the involuntary conversion property

• earliest date of threat of disposition

Explain latest date to replace involuntary conversion

within 3 years after the end of the taxable year in which gain is first realized

What are the holding period rules for involuntary conversions?

like-kind and non like-kind

Explain the “like-kind property received” holding rule for involuntary conversions

same as holding period of the involuntarily-converted property

Explain the “non like-kind property received” holding rule for involuntary conversions

begins on the day following the date of receipt

Explain gift sales

When a donor gives a donee a gift, the value of the gift is excluded from the donee’s income

Explain the gift tax rule

when a donee assumes a donor’s basis, the basis includes:

• gift tax paid by donor * (FMV at gift date - donor’s basis at gift date)

Code Sec. 1221

includes investment property, personal use assets, and creative works only if created by someone other than the taxpayer

Explain the taxation of long-term capital gains

20% for singles with taxable income over $459,750 and for joint over $517,200

Explain the taxation of collectible gains

up to 28%

Explain the taxation of Sec. 1202 gains

up to 28%

Explain the taxation of un-recaptured Sec. 1250 gains

up to 25%

What are the 4 baskets to determine capital gains and losses

1. short-term gains/losses

2. 28% long-term gains/losses

3. 25% long-term gains

4. 0/15/20% long-term gains/losses

Code Sec. 1231

business assets held over 12 months, includes depreciable personal and real property and land used in a business

Explain the purpose of Code Sec. 1245 Depreciation Recapture

to prevent taxpayers from taking ordinary depreciation deduction and then receiving long term capital gain treatment through Sec. 1231

Explain the type of property eligible for Sec. 1245

Sec. 1245 property held long-term is a subcategory of Sec. 1231. It includes depreciable personal property

Explain Sec. 1245 Depreciation Recapture

• ordinary income is recognized to the extent of total depreciation taken

• excess recognized gain is treated as Sec. 1231 gain

• all losses are treated as Sec. 1231 losses

• no recapture of depreciation as ordinary income when there is a recognized loss

What is the amount and tax effect of the exclusion of sale of a principal residence?

• $250,000 (married filing jointly may exclude up to $500,000)

• a permanent exclusion

What is the qualification for the sale of a principal residence?

• own and use for an aggregate of at least 2 of the 5 years preceding the sale or exchange

• not claim the exclusion during the 2 years immediately preceding the sale