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Several years ago, you paid $150,000 to build your home on a lot that cost you $50,000. Before converting the property to rental use last year, you paid $30,000 for permanent improvements to the house. You received a $5,000 easement payment from the State of California for use of the land for a power line. The county indicates the FMV of the house is $250,000 and the land is $100,000. What is your basis for depreciation?
Several years ago, you paid $150,000 to build your home on a lot that cost you $50,000. Before converting the property to rental use last year, you paid $30,000 for permanent improvements to the house. You received a $5,000 easement payment from the State of California for use of the land for a power line. The county indicates the FMV of the house is $250,000 and the land is $100,000. What is your basis for depreciation?
Michael owned a building as part of his active trades with an adjusted basis of $80,000 and land with an adjusted basis of $20,000. A tornado leveled the building. Michael used an insurance settlement of $140,000 plus $25,000 from a mortgage to construct a new building on the same land within 1 year. Assuming Michael elects any possible gain deferral, his recognized gain from the insurance settlement will be
Michael owned a building as part of his active trades with an adjusted basis of $80,000 and land with an adjusted basis of $20,000. A tornado leveled the building. Michael used an insurance settlement of $140,000 plus $25,000 from a mortgage to construct a new building on the same land within 1 year. Assuming Michael elects any possible gain deferral, his recognized gain from the insurance settlement will be
Mr. A exchanged stock and real estate that he held for investment for other real estate he intends to hold for investment. The stock at the time of the exchange had a fair market value of $30,000 and an adjusted basis to Mr. A of $27,000. Mr. A's old real estate had a fair market value of $150,000 and an adjusted basis to him of $90,000. The real estate acquired by Mr. A had a fair market value of $180,000 at the time of the exchange. What is the amount of Mr. A's recognized gain (or loss) on the exchange?
Mr. A exchanged stock and real estate that he held for investment for other real estate he intends to hold for investment. The stock at the time of the exchange had a fair market value of $30,000 and an adjusted basis to Mr. A of $27,000. Mr. A's old real estate had a fair market value of $150,000 and an adjusted basis to him of $90,000. The real estate acquired by Mr. A had a fair market value of $180,000 at the time of the exchange. What is the amount of Mr. A's recognized gain (or loss) on the exchange?
In June of Year 1, Mr. Arnett paid $82,600 for real property to be used as a manufacturing plant. Mr. Arnett allocated the cost to land as $10,325 and to building as $72,275. From Year 1 to Year 4, Mr. Arnett incurred the following expenses related to this property: Building remodeling before placed in service $20,000 Depreciation expense 14,526 Casualty loss not covered by insurance 5,000 Fire damage restoration 5,500 What is the adjusted basis of the building and land as of January 1, Year 5?
In June of Year 1, Mr. Arnett paid $82,600 for real property to be used as a manufacturing plant. Mr. Arnett allocated the cost to land as $10,325 and to building as $72,275. From Year 1 to Year 4, Mr. Arnett incurred the following expenses related to this property: Building remodeling before placed in service $20,000 Depreciation expense 14,526 Casualty loss not covered by insurance 5,000 Fire damage restoration 5,500 What is the adjusted basis of the building and land as of January 1, Year 5?
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Rebecca exchanges real estate held for investment with an adjusted basis of $400,000 and a mortgage of $100,000 for other real estate to be held for investment. The other party agrees to assume the mortgage. The fair market value of the real estate Rebecca receives is $500,000. She pays exchange expenses of $10,000. What amount of gain does Rebecca realize?
Rebecca exchanges real estate held for investment with an adjusted basis of $400,000 and a mortgage of $100,000 for other real estate to be held for investment. The other party agrees to assume the mortgage. The fair market value of the real estate Rebecca receives is $500,000. She pays exchange expenses of $10,000. What amount of gain does Rebecca realize?
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Reggie owned land used in his business that had an adjusted basis to him of $12,000 and was subject to an outstanding liability of $2,000. In exchange for the asset, Reggie received land of like-kind to be used in his business, plus $1,000 in cash. The land received had a fair market value of $14,000 at the time of the exchange. Reggie's liability was assumed by the other party for legitimate business purposes. What is Reggie's basis in the new asset?
Reggie owned land used in his business that had an adjusted basis to him of $12,000 and was subject to an outstanding liability of $2,000. In exchange for the asset, Reggie received land of like-kind to be used in his business, plus $1,000 in cash. The land received had a fair market value of $14,000 at the time of the exchange. Reggie's liability was assumed by the other party for legitimate business purposes. What is Reggie's basis in the new asset?
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What is the basis of property that is acquired in a like-kind exchange?
What is the basis of property that is acquired in a like-kind exchange?
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Which of the following is NOT included in the cost basis of property?
Which of the following is NOT included in the cost basis of property?
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When a taxpayer converts personal-use property to business use, what is their basis in the property?
When a taxpayer converts personal-use property to business use, what is their basis in the property?
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What is the unit of property in regard to capitalizing vs. expensing costs?
What is the unit of property in regard to capitalizing vs. expensing costs?
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What type of basis is determined by reference to the basis of the same property in the hands of another person?
What type of basis is determined by reference to the basis of the same property in the hands of another person?
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When does a taxpayer use the FMV of the property received in calculating the basis?
When does a taxpayer use the FMV of the property received in calculating the basis?
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Which of the following is NOT a type of basis in property?
Which of the following is NOT a type of basis in property?
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What is the most common type of basis?
What is the most common type of basis?
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What constitutes the basis of a property purchased with a mortgage?
What constitutes the basis of a property purchased with a mortgage?
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Which of the following costs must be capitalized when acquiring property?
Which of the following costs must be capitalized when acquiring property?
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In which scenario would painting costs be capitalized?
In which scenario would painting costs be capitalized?
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What type of expenses are considered miscellaneous costs that can affect basis?
What type of expenses are considered miscellaneous costs that can affect basis?
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How should costs related to major improvements to a property be treated?
How should costs related to major improvements to a property be treated?
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What happens to expenses incurred during the process of acquiring property?
What happens to expenses incurred during the process of acquiring property?
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Which of the following is NOT a common capitalized cost during property acquisition?
Which of the following is NOT a common capitalized cost during property acquisition?
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What must a taxpayer do when painting is the only improvement made to a building?
What must a taxpayer do when painting is the only improvement made to a building?
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What is the limit for the Sec. 179 expense deduction in 2023?
What is the limit for the Sec. 179 expense deduction in 2023?
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What expenses must taxpayers electing to use the de minimis expense treatment capitalize?
What expenses must taxpayers electing to use the de minimis expense treatment capitalize?
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Which of the following accurately describes the basis allocation for nontaxable distributions?
Which of the following accurately describes the basis allocation for nontaxable distributions?
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To maintain an asset's depreciation classification, routine repairs must be conducted how frequently?
To maintain an asset's depreciation classification, routine repairs must be conducted how frequently?
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What is the consequences of a shareholder's voluntary capital contribution to a corporation?
What is the consequences of a shareholder's voluntary capital contribution to a corporation?
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Which of the following describes how the basis of unimproved land is treated?
Which of the following describes how the basis of unimproved land is treated?
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When a taxpayer acquires property, what is the initial type of basis typically assigned?
When a taxpayer acquires property, what is the initial type of basis typically assigned?
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What is the definition of substituted basis?
What is the definition of substituted basis?
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What is the definition of transferred basis?
What is the definition of transferred basis?
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What is the definition of exchanged basis?
What is the definition of exchanged basis?
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What is the definition of converted basis?
What is the definition of converted basis?
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The unit of property can be an asset, a group of assets, or a defined portion of an asset.
The unit of property can be an asset, a group of assets, or a defined portion of an asset.
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When is an improvement expenditure capitalized?
When is an improvement expenditure capitalized?
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What are some examples of capitalized acquisition costs?
What are some examples of capitalized acquisition costs?
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What is the difference between repairs and improvements?
What is the difference between repairs and improvements?
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A taxpayer must capitalize amounts paid to facilitate the acquisition of real or personal property.
A taxpayer must capitalize amounts paid to facilitate the acquisition of real or personal property.
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What are some examples of expenses NOT properly chargeable to a capital account?
What are some examples of expenses NOT properly chargeable to a capital account?
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How is the basis of property acquired by gift determined?
How is the basis of property acquired by gift determined?
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What is the basis for depreciable property received as a gift?
What is the basis for depreciable property received as a gift?
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How are repairs and maintenance expenses typically treated under the uniform capitalization rules?
How are repairs and maintenance expenses typically treated under the uniform capitalization rules?
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What is the treatment of Section 179 expense under the uniform capitalization rules?
What is the treatment of Section 179 expense under the uniform capitalization rules?
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A shareholder does not recognize gain on the voluntary contribution of capital to a corporation.
A shareholder does not recognize gain on the voluntary contribution of capital to a corporation.
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The basis of stock acquired in a nontaxable distribution is allocated proportionally to the FMV of the original stock and the distribution on the date of the distribution.
The basis of stock acquired in a nontaxable distribution is allocated proportionally to the FMV of the original stock and the distribution on the date of the distribution.
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The basis of qualified property received in a like-kind exchange is adjusted for boot and gain recognized.
The basis of qualified property received in a like-kind exchange is adjusted for boot and gain recognized.
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What are the general deadlines for completing a like-kind exchange?
What are the general deadlines for completing a like-kind exchange?
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Gain is generally recognized when a taxpayer involuntarily converts property into similar or related property only to the extent that the amount realized exceeds the cost of the similar or related-in-service property.
Gain is generally recognized when a taxpayer involuntarily converts property into similar or related property only to the extent that the amount realized exceeds the cost of the similar or related-in-service property.
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Which of the following statements is NOT TRUE regarding tax-free like-kind exchanges?
Which of the following statements is NOT TRUE regarding tax-free like-kind exchanges?
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What is the basis of a new warehouse acquired in exchange for an old warehouse that was destroyed by fire and was insured for the loss?
What is the basis of a new warehouse acquired in exchange for an old warehouse that was destroyed by fire and was insured for the loss?
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Study Notes
Depreciation Basis
- For property converted to business use, the basis for depreciation is the lesser of the fair market value (FMV) of the property at the conversion date or the adjusted basis at conversion.
- The adjusted basis of a property is calculated by adding any improvements to the original purchase price.
- Easements are related to land and are not depreciated.
- Improvements such as new electrical wiring, plumbing, and interior/exterior painting will increase the basis of a building.
- Costs of extending utility service lines improve the property and therefore increase the basis.
- The basis of a building includes the cost of the building, plus capital improvements such as new driveways and gutters.
- Casualty losses and fire damage restoration are subtracted from the basis.
Involuntary Conversions
- An involuntary conversion occurs when property is involuntarily converted into money or other property not similar in service or use to the converted property.
- If the property is converted into money and the taxpayer reinvests the proceeds in similar property, the gain can be deferred.
- If the reinvested amount is greater than the proceeds received, no gain is recognized.
- Losses are not deferred in involuntary conversions
- Time limits relating to reinvestment must be adhered to (typically 2 years after the close of the taxable year).
- The source of the funds used for reinvestment (e.g., insurance proceeds) is irrelevant.
Like-Kind Exchanges
- No gain or loss is recognized in the exchange of like-kind property held for productive use in a trade or business or for investment.
- Boot (non-like-kind property) is received, a gain or loss is recognized on the boot.
- Recognition of gain or loss is not triggered when no boot is given.
- The basis of the property received in a like-kind exchange is the adjusted basis of the property given up, increased by any recognized gain and decreased by any boot received.
- An exchange is a transaction, and cash/liabilities are considered as boot.
- Realized (not recognized) gain is the difference between the sale price, and the basis; the lesser of the two will be recognized (taxed).
- Expenses related to the exchange (such as legal fees) are added to the basis of the property.
Property Basis Calculation
- The basis of property is equal to the purchase price of the property plus any improvements made to the property in the case of buildings.
- Ordinary maintenance is not added to the basis of property (Examples: painting, repairing, and cleaning do not increase the basis).
- Expenses that add value to the property or adapt the property to a new or different use are included in the basis of property (Examples: assessments, costs of extending utility service lines).
- Improvements include capital improvements, major remodeling (such as new roofs or additions).
- Casualty losses and fire damage restoration are subtracted from the basis.
- The basis of land is the purchase price plus any capital improvements.
- The basis of a building is the purchase price plus any capital improvements and the depreciable value thereof.
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Description
This quiz covers important concepts related to the taxation of property, including depreciation basis, involuntary conversions, and like-kind exchanges. Test your understanding of how these principles apply in various scenarios, and learn about the implications for property used in business or investment.
