Land and all things permanently affixed to the land (buildings, parking, sidewalk)
What is the definition of personal property?
All things not classified as real property (land plus those items affixed to the land)
For property that is gifted, what is the basis and the holding period?
If held and not sold, basis = lesser of donor’s adjusted basis or FMV at date of gift.
If sold, basis is the either book value from gifter + gift tax paid, or FMV if lower than book value, depending on whether it is sold for a loss or gain.
If sold for a gain, use book value (it’s higher than FMV), holding period is original purchase date
If sold for a loss, use FMV, holding period is date gift received
If sold between book value & FMV, consider the basis as the amount sold = no gain/loss
For property that is inherited, what is the basis and the holding period?
Basis is either the FMV at the date of decedent’s death OR the executor may choose FMV at the earlier of 6 months after death or date of distribution/sale. If an alternate date is used, it must be used to value all of the estate property.
The holding period is automatically considered to be long-term property.
What is the IRS definition of materials and supplies?
Items that cost </= $200 or have an economic life </= 12 months and are not considered inventory
True / False: The building and its systems are considered a single unit of property.
False
The building systems are considered separate from the building structure
Which items are considered building systems? Why is this important?
heating, ventilation, A/C
plumbing, electrical
escalators or elevators
alarm, security, or fire protection
gas distribution
Improvements to either the building or its systems must be independently capitalized
What amounts must be capitalized for intangible property?
Amounts paid or incurred for acquiring, creating, or enhancing the property
Define the De Minimis Rule for a company to capitalize vs expense an asset.
If the company has a written policy in place as of the beginning of the year
It can expense in the financial stmts items purchased that are less than the policy amt or have an economic life longer than the policy amt.
For tax purposes the max amt is $5,000 per asset if the policy is in place AND there is an applicable financial statement OR
$2,500 per asset if no applicable financial statement exists.
Define a Qualifying Small Taxpayer.
One whose annual gross receipts are </= $10M during the three preceding tax years
Define the safe harbor limits for routine maintenance
Maintenance that does not result in a betterment of the asset, but is expected to occur more than once during the class life of the asset.
For qualifying small taxpayers this includes costs related to a bldg that do not exceed the lesser of
++ 2% of unadjusted basis OR
++ $10,000
Define a Small Business Taxpayer
Annual gross receipts of <$10M in assets
True / False: Small business taxpayers can elect to change the method of accounting under the repair regulations on a prospective basis rather than a retroactive basis
True
What are the 3 ways to acquire assets (and their basis)?
Purchase: basis is purchase price, set-up, and future capital improvements
Gift: see separate flashcard
Inheritence: The FMV on the date of death OR the value 6 months later (if executor chooses)
Define a “spreading adjustment”
When you receive more of the same item and the basis of the original items is spread across all items now in possession.
Example: stock dividend. The basis of the original shares of stock are now spread (allocated) to all shares of stock.
Which of the following costs are capitalized for the basis vs expensed? (a) Van purchase cost $35,000, (b) shipping costs $500, (c) paint to match the rest of the fleet $1000, (d) sales tax $2,800, (e) shipping insurance $100, (f) washing and detailing $50, (g) engine tune-up $250
(a) – (e) are included in the basis
(f) – (g) are considered maintenance expense
Which of the following costs are capitalized for the basis vs expensed? (a) building purchase, (b) repair of roof, (c) racks to make interior suitable for inventory storage, (d) legal fees
(a), (c), (d) are included in the basis
(b) is a repair and maintenance expense
Which of the following costs are capitalized for the basis vs expensed? (a) equipment purchase, (b) shipping cost, (c) installation cost, (d) testing cost, (e) fix damage that occurred during shipping to make the equipment functional
