PROPERTY TRANSACTIONS

1
PROPERTY TRANSACTIONS

• ACQUISITIONS
• COST RECOVERY
• DISPOSITION

2
ACQUISITION

• BY PURCHASE
• BY EXCHANGE
• FOR PROPERTY
• FOR NOTE
• FOR SERVICES
• BY GIFT
• BY INHERITANCE

3
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

4
BASIS IF PURCHASED

• CASH PURCHASE PRICE
• FREIGHT IN
• INSTALLATION COSTS
• SALES TAX

5
BASIS

• THE UNRECOVERED DOLLARS REPRESENTED BY THE ASSET

6
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

7
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

8
BY GIFT

• TRANSFER WITHOUT CONSIDERATION
• BASIS ROLLS OVER

9
BY INHERITANCE

• TRANSFER BY BEQUEST
• BASIS IS FMV DATE OF DEATH OR ALTERNATIVE
  VALUATION DATE OF SIX MONTHS SUBSEQUENT

10
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

11
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

12
DEPRECIATION CONVENTIONS CONTD

• MIDMONTH CONVENTION APPLIES TO REAL PROPERTY FOR
  EITHER ACQUISITION OR DISPOSITION

13
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..??

14
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
• Addtl bonus First Year Deprec of 100 is
  automatic unless t/p refuses

15
Luxury Autos

• IRS table limits apply so that 1st year
  depreciation is limited to 3,160. A taxpayer
  may also claim addtl bonus depreciation of
  8,000 for an overall total limited to 11,160.
  Recovery occurs over an extended period.

16
RECOVERY ON INTANGIBLES

• ORGANIZATIONAL AND START-UP COSTS
• LEASEHOLD COSTS
• PURCHASED INTANGIBLES

17
ORGANIZATIONAL AND START-UP COSTS

• FIRMS MAY ELECT TO WRITE-OFF 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.

18
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

19
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.

20
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

21
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)

22
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?

23
COMPUTATION OF THE GAIN OR LOSS

• AMOUNT REALIZED ON SALE
• -ADJUSTED BASIS OF PROPERTY
• REALIZED GAIN OR LOSS

24
CHARACTER OF GAIN/ LOSS

• CAPITAL?
• ORDINARY?

25
DISPOSITIONS OF NONCAPITAL ASSETS

• INVENTORY
• REAL ESTATE SALES
• ACCOUNTS RECEIVABLE
• SECTION 1231 ASSETS
• INTERFACE WITH SEC 1245 1250
• RECAPTURE OF PRIOR LOSSES
• DEPRECIATION RECAPTURE