Glossary of Federal Income Tax
Other Decks By This User
- What's the difference b/t horizontal equity and veritical equity?
- Horizontal - Theory that states similiarly situated txps should be treated the same
Vertical - Theory for taxing txp's in different bracket's differnently (Higher income txps should pay more, proportionally)
- How is basis determined for a sale of property?
- 1012- Sale - Cost basis is determined by how much txp paid for the property
- How is basis determined for a devise/ bequest of property?
- 1014- Cost basis is determined as the FMV at the date of hte decedent's death.
- How is basis determined for a gift of property? (pain in the ass one)
- 1015 - The general rule is that cost basis is determined for the donee by taking the donor's basis; the excetion to this rule applies when the FMV of the property is (1)less than the donor's basis when it was given; and (2)the owner subsequently sells for a loss.
* When the donnee sells for more than FMV @ time of gift, but less donor's basis...2 ways to figure basis
(1) For a gain use donor's basis
(2) For a loss use the FMV @ date of gift
- What is the rule for part gift/ part sale?
- 1.1015 - The donnee’s basis is the greater of the amount paid or the donor’s adjusted basis (this ends up benefiting the donnee, giving him the best of both worlds)
- What are the 2 Return of Capital theories?
- Cash Method - report income when it's actually received
Accrual Method - (typically found in corporations), report income when the $ is earned
- Explain the Claim of Right Doctrine (Sec 1341)
- Applies when txp includes income mistakenly in one year that he has to return in later years.
Txp can deduct either amt. paid in tax the earlier yr.; or the actual amount in dispute.
- Under the Claim of Right Doctrine, when does the txp deduct the amt. of tax paid vs. the amt. in question?
- When tax rate has risen and rate in yr. 1<yr. 2; then txp deducts the amount in ques.
When the rate decreases and rate in yr1>yr2; the txp can deduct the amt. of tax paid in the earlier yr.
- What does the tax benefit rule say?
- Tax Benefit Rule says the GI doesn't include income attributable to the recovery during the taxable year to the extent that such did not reduce the amt of tax imposed.
- Under Sec 109, when a txp rents land, and the tenant makes improvements to such land in addition to paying rent, are the improvements taxable?
- No, they are not taxable gain, but the txp cannot increase his basis when he takes control of the land again, effectively deferring the gain until the land is sold.
- What does the General Rule for losses under Sec. 165 say?
- General Rule. There shall be allowed as a deduction any loss sustained during the taxable year and not compensated for by insurance or otherwise. (for individuals, this is only for losses incurred in trade/buisness or transactions for profit)- There must be an overt act that irrevocably cuts ties
- Sec 121 says...
- Sell your house the gain is excluded from 250k to 500k.
- What does the Like-Kind Exchange rule (Sec 1031) say?
- No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment (not sales and repurchases, mutual sales)
- Both property exchanged and received must be for business or investment use (excluding personal use or property; house, cars, PCs)
- The 2 properties must be of “like-kind” to each other
(This refers to the nature and character of property; whether property is improved or unimproved is immaterial)
- Must not fall within the exceptions of §1031(b)…(stocks, bonds, securities, interests in partnership, certificates of trust, or choses in action)
- What are the 3 requirements have to be met to get into §1031 (non-elective)
- (1) Property with productive use in a trade or business / investment
(2) Exchange for like kind
(3) Property received must be held in productive use
- 1031 Hypo -Bob owns Bl/acre fmv 40; AB 10 - xchanges w/ Sam for wh/acre (fmv 30; AB 15) and a Horse fmv 10; AB 2
Bob’s AR = (30+ 10) = 40
Bob’s Real G = (40-10) = 30
Bob’s Recognition =10
Bob’s Basis in horse =10
Bob’s Basis in Wh/acre =10 + 10 – 10 = 10
2. Sam’s Amount Realized – (40-10)= 30
Sam’s Realized Gain – (30-15) = 15
Sam Recognition – 0
Sam’s Basis – 15+ 10 (horse’s fmv)= 25
3. Xchange horse – part of bl/acre
Gain Realized – (10-2)= 8
Gain Recognized – 8
Basis of 10
- What's the formula for determining basis for a like-kind exchange
- Adjusted basis of all like-kind and non-like property
Any recognized gain, liability taken on, or cash paid
any loss recognized, liability shed, or cash rec.
allocate the amt. first to non-like kind property, with the rest going to the like kind
You must Login or Register to add cards