Ea Business - Ch 12. Property Types

Front 1

What is section 1231 property?

Back 1

a. Depreciable or amortizable property (personal or real) used in a business

b. Leasehold interests

c. timber, coal, or iron ore

d. Livestock or unharvested crops

e. Goodwill and other Section 197 intangible

f. Copyrights if acquired for investment

Front 2

What Is Section 1245 Recapture Property?

Back 2

Any property other than depreciable real property that is or has been subject to an allowance for depreciation or amortization

Front 3

What is section 1250 recapture?

Back 3

All real property that is subject to an allowance for depreciation and has never been section 1245 property is subject to section 1250 recapture rules

Front 4

Section 1245 Recapture - What is recaptured? Treatment?

Back 4

ALL depreciation of the property - ordinary income

Front 5

Section 1250 Recapture - What is recaptured? Treatment?

Back 5

Un-recaptured: Straight Line Depreciation - 25% rate

Recaptured: Excess depreciation - ordinary income

Front 6

What is a Section 1231 gain?

Back 6

Total gain - Recaptured Amount = 1231 GAIN

Front 7

If a business asset is sold under the Installment method, when is the recaptured gain reported?

Back 7

Ordinary income in the Year of sale

Front 8

What is NOT a capital asset?

Back 8

ACIDS

1. Accounts or Notes Receivable

2. Copyright WHEN CREATED BY TAXPAYER

3. Inventory or property mainly for SALE TO CUSTOMERS

4. Depreciable property and real estate used in the TP's trade or business

5. Supplies regularly used in the course of TP's trade or business

Front 9

What is listed property?

Back 9

1. passenger automobiles weighing 6000 pounds or less

2. Any other property used for transportation, unless it is an accepted vehicle

3. Property generally use for entertainment, recreation, or amusement

4. Computers and related peripheral equipment, unless used only at a regular business establishment

Front 10

How are section 197 intangibles treated?

Back 10

Must be amortized over a 180 months

Front 11

What are section 197 intangibles?

Back 11

1. Goodwill

2. Going concern value

3. Workforce in place

4. Business books and records, operating systems, or any other information base, including lists or other information concerning current prospective customers

5. A patent's copyright formula process design pattern, know-how, format, or other similar item

6. A customer-based intangible

7. A supplier-based intangible

8. A license, permit, or other right granted by government unit or agency

9. A covenant not to compete in connection with the acquisition of the business

10. Any franchise, trademark, or trade name

11. A contract for the use of, or a term of interest in, any item in this list

Front 12

What section 197 intangibles cannot be amortized?

Back 12

Any intangibles that you create rather than acquire

(unless you create them in acquiring assets that make up a trade or business or substantial part of the trade or business)

Front 13

What property qualifies for the depletion deduction?

Back 13

Mineral property or standing timber

Front 14

Is a home office used for business and for personal use depreciable?

Back 14

No

Front 15

If depreciable property is improved, how is the improvement treated?

Back 15

improvement is treated as separate depreciable property

Front 16

Repairs and Improvements- how are repairs treated?

Back 16

Just like any other business expense

Front 17

Repairs and improvements- when his repair considered an improvement?

Back 17

1. Increases the value of the property

2. Make the property more useful

3. Lengthens its life

Front 18

What 3 basic factors determine how much depreciation the taxpayer may deduct?

Back 18

1. Basis in the property

2. Recovery period for the property

3. Depreciation method used

Front 19

Can the taxpayer depreciate personal use property?

Back 19

No

Front 20

What are the 2 main systems of depreciation under MACRS?

Back 20

1. Gen. depreciation system

2. Alternative depreciation system

Front 21

What is the Gen. depreciation system?

Back 21

1. Taxpayers must use the Gen. depreciation system in most rental activities

2. Recovery periods are usually shorter than under ADS

Front 22

What is the Alternative Depreciation System?

Back 22

1. Uses the straight line method of depreciation

2. Election applies on a property by property basis for residential rental property and nonresidential real property

Front 23

For the depreciation options for property placed in service before 1987? (2 options)

Back 23

1. Accelerated cost recovery system - property in service between 1980 and 1987

2. Straight line or declining balance method - property placed in service before 1981

Front 24

Can taxpayer's change depreciation method without IRS approval?

Back 24

No

Front 25

What are the 2 main methods of depreciation under MACRS?

Back 25

1. Straight line depreciation

2. 200% or 150% declining balance

Front 26

What convention applies to most transactions?

Back 26

The half-year convention

Front 27

What is section 179 depreciation?

Back 27

Instead of depreciating property over time, a taxpayer may elect to claim it as an expense up to $500,000

Front 28

Does section 179 depreciation apply to real property?

Back 28

No

Front 29

Who is considered a related person in a like-kind exchange?

Back 29

For purposes of a like kind exchange, related persons include:

- A taxpayer and certain family members, including only brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).

- An individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation.

- A partnership and a person owning, directly or indirectly, more than 50% interest in the partnership.

- A tax-exempt charitable or educational organization controlled by taxpayer or family member

Front 30

What is listed property?

Back 30

a. Passenger automobiles weighing 6000 pounds or less

b. any other property used for transportation, unless it is an excepted vehicle

c. property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment)

d. computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment

e. NOT a cell phone

Front 31

Is a cell phone listed property?

Back 31

No

Front 32

What is Section 1245 property? FULL ANSWER

Back 32

Section 1245 property includes anyproperty that is or has been subject to depreciation or amortization and is:

- Personal property,

- Other tangible property (other than a building or its structural components) that is: Used in manufacturing, production, extraction or furnishing transportation, communications, electrical energy, gas, water, or sewage disposal services,

- A research facility used for the activities in (a),

- or A facility used in any of the activities in (a) for the bulk storage of fungible commodities,

- Real property (other than property described in (2) with an adjusted basis that was reduced by certain amortization recapture deductions listed in section 1245(a)(3)(C) of the Internal Revenue Code

- A single purpose agricultural or horticultural structure,

- or A storage facility (other than a building or its structural components) used for the distribution of petroleum.

Front 33

When is a property condemned for tax purposes?

Back 33

When the government informs the property owner that the building will be condemned and used for a public purpose.

Front 34

How are Section 197 intangibles treated?

Back 34

MUST be amortized over 180 months

Front 35

What are Section 197 intangibles? List all 12

Back 35

1) goodwill

2) going concern value

3 workforce in place

4) business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers

5) of patents, copyrights, formula, process, design, pattern, know-how, format, or similar item

6) a customer-based intangible

7) a supplier-based intangible

8) a license, permit, or other right granted by a governmental unit or agency

9) a covenant not to compete in connection with the acquisition of a business

10) any franchise, trademark, or trade name

11) a contract for the use of, or a term interest in, any item in this last

Front 36

Can you amortize a 197 intangible you CREATE?

Back 36

Generally, NO

unless she creates the in aquiring assets that make up a trade or business or a substantial part of a trade or business

Front 37

What is depreciable Section 197 deduction property?

Back 37

1) tangible personal property

2) machinery and equipment

3) property contained in or attached to a building (not structural components), such as office equipment, refrigerators, which restore counters, printing presses, testing equipment, and signs

4) gasoline storage tanks and pumps and retail service stations

5) livestock

6) other tangible property (except buildings and their structural components) used as:

- an integral part of manufacturing, production, or extraction; or an integral part of furnishing transportation, communications, electricity, gas, water, or sewage disposal services

- a research facility

- bulk storage of fungible commodities

6) off-the-shelf computer software

7) petroleum storage or distribution facilities

8) single purpose agricultural (livestock) or horticultural structures

Front 38

Reduced Section 179 Deduction - SUV and certain other vehicles

Back 38

Cannot expense more than $25,000

Rule applies for vehicles designed to carry less the 9 passengers rated it more than 6000 pounds and not more than 14,000 pounds

Front 39

Reduced Section 179 Deduction - Passenger Vehicles

Back 39

Car: $3,160

Truck or Van: $3,460

Front 40

Reduced Section 179 Deduction - business use

Back 40

MUST use it more than 50%

Front 41

Reduced Section 179 Deduction - Cost of qualifying Section 179 Property

Back 41

If more than $2 million, reduce by cost more than $2 million

Front 42

MACRS Recovery Period - 5 year property

Back 42

residential real estate furniture, computers, office machinery, autos, light trucks, carpeting, etc.

Front 43

MACRS Recovery Period - 7 year property

Back 43

Office furniture and equipment

Front 44

MACRS Recovery Period - 15 year property

Back 44

roads, fences, shrubbery

Front 45

MACRS Recovery Period - 20 year property

Back 45

utilities and sewers

Front 46

MACRS Recovery Period - 27.5 year property

Back 46

Residential rental property

Front 47

MACRS Recovery Period - 39 year property

Back 47

Commercial Buildings and Structures

Front 48

Section 179 Deduction - Buy property with cash and trade-in -- what portion permitted as a Section 179 deduction?

Back 48

CASH ONLY

Front 49

Explain Section 1245 recapture rules?

Back 49

Section 1245 requires that all gain be treated as ordinary gain to the extent of the depreciation taken on the property disposed of.

Front 50

Section 1231 recapture period?

Back 50

5 years