Taxation: Property, Estates, Trusts, Gifts

Bond Premium Amortization (for bonds yielding taxable income)

• Reduces bond’s basis over time
• Permitted as interest deduction from AGI

Gift Basis = Determined @ time of disposal in taxable transaction

Sold at Loss: Basis = Lesser of: 1) FMV @ gift date
2) Donor’s adjusted basis

Sold at Gain: Basis = Donor’s adjusted basis

Sold a price between (FMV @ gift) & (Donor’s adj basis):

No gain/loss is recognized

Gift Holding Period

Donee’s basis = Donor’s basis -> Includes HP of donor
Donee’s basis = FMV @ gift -> HP begins on date of gift

Property Inherited
• Basis = FMV on date of death (unless electing alternate valuation
date- 6 months later, in which case basis = FMV on that date)
• Automatically considered to be held Long-Term
• NEVER included in gross income
• Distributed btw death and Alt valuation date, Basis = FMV @
Distribution

Cost Recovery
1) Section 179 = T/B depreciable property purchased from
unrelated party
• $150K can be expensed in year equipment placed in service
• Reduced $-for-$ for every dollar assets > $800K
○ Any amount disallowed may be CF indefinitely
○ CANNOT exceed business income during the year

2) Bonus Depreciation (2008 only) = 50% after taking 179

deduction
• Cannot enter binding contract for purchase before 1/1/08

3) MACRS (disregard salvage value)

200% DDB switching to SL:
5-year: Computers, autos, vans, light trucks
7-year: Furniture, office equipment, miscellaneous (unclassified)
SL for entire life
27.5-year: Residential real-estate (apts & duplexes)
39-year: Non-residential real property placed in service after
1993
Luxury Autos
• $10,960 limit w/bonus depreciation
○ Trucks/vans = $11,160
Taxation: Property, Estates, Trusts, Gifts
• $2,960 if electing out of/not qualifying for bonus depreciation
○ Trucks/vans = $3,160
• Large vehicles (>6000 lbs.) are exempt
• Assume 100% business usage (limits reduced if partial personal
use)

Capital Gains/Losses
• Individuals -> Carry-Forward disallowed Capital Losses
indefinitely
• 1245 = depreciable personalty
○ Treat depreciation recapture as ordinary income
• 1250 = depreciable realty
○ “Excess” depreciation = ordinary income
○ Unrecaptured 1250 gain = 25% rate

Installment Sales- Use when 1+ payment received in year after sale

• Recognize amt received in year * GP% to determine gain in year
• If dealer in goods sold -> CANNOT USE INSTALLMENT
METHOD
○ Taxed on total gross profit realized during the year!

Life Insurance Proceeds

• Usually tax-free
• Sold to 3rd Party -> Proceeds included in GI, Less (cost) &
(premiums paid)

Section 1031: Like-Kind-Exchanges

• Biz-for-biz, investment-for-biz, investment-for-investment qualify
○ Includes trading apartment complex for office building
• Disallowed:
○ Securities, PTP interests, inventory, personal use property
• Basis:
○ No recognized gain-> Adj basis (new) = Adj basis of prop
given up
○ Boot: Basis (new) = Adj basis (old) + gain recognized +
Boot given – FMV of boot received

Involuntary Conversion – To qualify for non-recognition, must reacquire

property w/in end of 2nd tax year following condemnation (3 if
used for biz)

Sale of Principal Residence

• Occupy 2 of 5 years, immediately preceding the sale
• May reuse EVERY TWO YEARS
• Single/HOH/MFS = $250K
• MFJ = $500K