Transcript PROPERTY TRANSACTIONS

PROPERTY
TRANSACTIONS
ACQUISITIONS
COST RECOVERY
DISPOSITION
ACQUISITION


BY PURCHASE
BY EXCHANGE
• FOR PROPERTY
• FOR NOTE
• FOR SERVICES


BY GIFT
BY INHERITANCE
BY PURCHASE

QUESTION?:
• DEDUCTIBLE EXPENSE OR
CAPITALIZED COST
• DOES THE COST CREATE OR
ENHANCE AN ASSET WITH A
USEFUL LIFE EXTENDING BEYOND
THE CURRENT PERIOD
• IF UNCERTAIN, THEN CAPITALIZE
BASIS IF PURCHASED




CASH PURCHASE PRICE
FREIGHT IN
INSTALLATION COSTS
SALES TAX
BASIS

THE UNRECOVERED DOLLARS
REPRESENTED BY THE ASSET
EXCHANGE



IF DISSIMILAR PROPERTY IS
GIVEN, THE EXCHANGE IS
HANDLED AS A SALE
IF SIMILAR PROPERTY IS
GIVEN, THE EXCHANGE IS
NONTAXABLE
IF NOTE/SERVICES, THEN FMV
BASIS UNDER
EXCHANGE


IF HANDLED AS A REGULAR
SALE, THE FMV BECOMES THE
NEW BASIS
IF EXCHANGE OF SIMILAR
ITEMS, THEN WE HAVE A
ROLLOVER BASIS
BY GIFT


TRANSFER WITHOUT
CONSIDERATION
BASIS ROLLS OVER
BY INHERITANCE


TRANSFER BY BEQUEST
BASIS IS FMV DATE OF DEATH
OR ALTERNATIVE VALUATION
DATE OF SIX MONTHS
SUBSEQUENT
COST RECOVERY
UNDER TAX SYSTEM

MODIFIED ACCELERATED COST
RECOVERY SYSTEM (MACRS)
• ASSET IS ASSIGNED TO 1 OF 10
RECOVERY PERIODS
• ALLOCATION METHODS ARE
200%(3,5,7, &10 YR),150%(15 OR
20 YR) WITH A SWITCH TO
STRAIGHT LINE IF LARGER
DEPRECIATION
COVENTIONS


FOR PERSONAL PROPERTY,
HALF-YEAR CONVENTION
APPLIES FOR ACQUIS / DISPO
EXCEPTION TO HALF-YEAR IF
MORE THAN 40% OF PERSONAL
PROPERTY IS PURCHASED IN
LAST QTR OF YR: MID QTR
CONVENTION
DEPRECIATION
CONVENTIONS CONT’D

MIDMONTH CONVENTION
APPLIES TO REAL PROPERTY
FOR EITHER ACQUISITION OR
DISPOSITION
LIMITED EXPENSING
ELECTION: SEC 179


FOR 2014, UP TO $500,000 OF
PERSONAL PROPERTY
ACQUISITIONS MAY BE
IMMEDIATELY EXPENSED UPON
ACQUISITION
Currently, only $25,000 is
available for 2015 but…..??
RESTRICTIONS ON SEC
179



If company purchases in excess of
of $200,000 of personal property in
2014, the excess reduces the
election amount $ FOR $
Election limit is TAXABLE INCOME
for the firm
Addt’l bonus First Year Deprec of
100% is automatic unless t/p refuses
Luxury Autos

IRS table limits apply so that 1st
year depreciation is limited to
$3,160. A taxpayer may also
claim addt’l bonus depreciation
of $8,000 for an overall total
“limited” to $11,160. Recovery
occurs over an extended period.
RECOVERY ON
INTANGIBLES



ORGANIZATIONAL AND STARTUP COSTS
LEASEHOLD COSTS
PURCHASED INTANGIBLES
ORGANIZATIONAL AND
START-UP COSTS

FIRMS MAY ELECT TO WRITEOFF THESE COSTS IN
STRAIGHT-LINE MANNER OVER
NOT LESS THAN 180 MONTHS
FROM POINT FIRM BECOMES
OPERATIONAL after deducting
the first $5,000 of costs.
LEASEHOLD COSTS AND
IMPROVEMENTS


COSTS TO ACQUIRE THE LEASE
ARE CAPITALIZED AND
WRITTEN OFF OVER LEASE
TERM
IMPROVEMENTS ARE
CAPITALIZED AND RECOVERED
OVER THE MACRS PERIOD*
PURCHASED
INTANGIBLES


For tax purposes, a firm will
recover the cost of these
intangibles over a 15-year
period regardless of actual
benefit period.
Separately purchased
intangibles will be amortized
over their remaining legal lives.
DEPLETION OF
NATURAL RESOURCES




Recognized as item is “sold” if
% depletion is adopted:
Recognized as item is
“extracted” if cost depletion is
used
UNITS SOLD x UNRECOVERED
EST TOTAL
BASIS
DEPLETION CONTINUED

PERCENTAGE DEPLETION:
• DEDUCTION IS BASED ON THE
GROSS INCOME GENERATED BY A
DEPLETABLE PROPERTY
MULTIPLIED BY AN ARBITRARY
PERCENTAGE GRANTED BY THE
CODE TO THE SPECIFIC WASTING
ASSET (E.G. 10% FOR COAL, 15%
FOR NATURAL GAS)
DISPOSITIONS



IS A GAIN OR LOSS
RECOGNIZED ON THE
DISPOSITION OF PROPERTY?
WHAT TAX YEAR IS AFFECTED?
WHAT IS THE CHARACTER OF
THE RECOGNIZED GAIN OR
LOSS?
COMPUTATION OF THE
GAIN OR LOSS



AMOUNT REALIZED ON SALE
-ADJUSTED BASIS OF
PROPERTY
REALIZED GAIN OR LOSS
CHARACTER OF
GAIN/ LOSS


CAPITAL?
ORDINARY?
DISPOSITIONS OF
NONCAPITAL ASSETS




INVENTORY
REAL ESTATE SALES
ACCOUNTS RECEIVABLE
SECTION 1231 ASSETS
• INTERFACE WITH SEC 1245 &
1250
• RECAPTURE OF PRIOR LOSSES
• DEPRECIATION RECAPTURE