Chapter 12 Chapter 8 - Basis (gift): 1) date of gift basis to donor; 2) amt of
• Credits > tax = refund; credits < tax = owe more • Cost recovery: how things areexpensed over Fed gift tax paid; 3)FMV of property
• Deductions reduce taxable income, NOT taxed time - • Special dual basis–Built-in Loss: FMV LOWER
directly – benefits HIGHER tax brackets (marg. rate) • Amortization: DEPREC for INtangible assets; < donor basis; prevent loss shift, NOT gain
• Credits reduce…offset the TAX – benefits the over a 15+ year period - • Carryover Basis–FMV @date of gift EXCEED >
LOWER tax brackets; $ - 4 - $ tax reduction • Depletion: natural assets (land) donor basis (if GAIN) – Sales $ > donor basis; use
- EX. benefit of $1k deduction vs. credit → choose • Personal use ASS – no cost recovery carryover basis
CREDIT = $-4-$ reduction VS. ded. = 1k(# %) • Realty: permanently affixed to the land(vs. - • Dual basis rules–FMV @date of gift LESS <
- 0 credits are affected by marg. Tax rate Personalty – NOT realty: anything MOVABLE) donor’s basis (LOSS) – Sales $ < FMV; use FMV
• Refundable Credits: can make tax calculation • Depreciation: TANGIBLE asset – only when @date of gift as basis
negative – allows for refunds to be received placed in service – begins @available for use; - Sales $ is (in-between donors basis→FMV @
- Child tax credit, earned INC, afford. Care act prem for ASS bought near year-end not yet placed til date of gift) = NO GAIN NOR LOSS
- • Child Tax Credit: refund up to 15% income in nextyr • Inheritance: step-up: FMV @time of death
excess of $2.5k (MAX limit of $1,700 for 2024) - Pers. Use ASS→BUS-produce use: basis = - PVD: date of decedent’s death; AVD: 6 months
- 3+ qualifying children → alternative method LOWER of 1)Adj. Basis VS. 2) FMV @convert after death – only if BOTH value of gross estate &
• Nonrefundable Credits:can only 0 out tax, benefit • 179 DEPREC (100%): New acq. ASS (NOT estate tax liability are LOWER than if PVD was used
is much lower; only use up to tax value realty); elective • NONTAX Trans: G/L deferred: exch. Of property;
- gen bus: rehab, work opp., research, low-INC, - Limits: MAX $1.22 mil in DEP=ceiling – if => change in form, NOT substance(sell 1 for multiple)
disabled, small employer pension, employee $3.05 mil→deduct ceiling $-4-$; CANNOT - does NOT pay GAIN TAX=real G is NOT RECOG;
-provided child care/fam+medical leave, elderly, generate loss(based on INC)→carryforward; postponed to future date (carryover)
foreign, adoption, dependent, child/depend. Care, phased out for BIG BUS; benefit: target certain - Hold period→ carries to new asset acq.
education (40% of AOC is refundable), energy (MAX INC level (election) - DEPREC recapture: surrendered→new
30% each year=$1,200), certain retirement plan, • Bonus DEPREC (60%): New ASS+Used Prop - • Like-kind (1031): ONLY real prop.=real estate;
health insurance (NOT realty); elective; NO limits prop. are used/held to invest; exchange for
• Gen bus Credit: limit to net INC tax reduced by - Accelerated = 179 + Bonus like-kinds → NOT RECOG & hold period carriesover
greater of… 1) tent. Min. tax; 2) 25% of net reg. Tax • MACRS(Normal): cost recovery<ASS - received: wherewithal to pay tax; RECOG gain
liability > $25,000; 3) unused credit carried back 1 ECONlife; Mandatory INCREASES by boot RECEIVED
yr, forward 20 yrs; 4) FIFO applied to carryback/over, - 1) class life= # yrs can DEPREC ass (NOT - Boot given: assume LIAB in exch.-->amt L treated
utilization of credits intended use); 2) method=double decline; 3) - Boot received: taxpayer LIAB assumed
• Child/Depend. TAX Credit: dollar amount to take convention: • Involuntary conversion (1033): only gains
care of kids – based on # of qualifying child/depend. - • Half-yr (6m) PERSONALTY EX. 8.3 deferred; insurance proceeds paid @FMV
- 1) under 17; 2) US citizen; AND 3) dependent of - • Mid-Q: EX 8.4/HMTL; PERSONALTY - AMT reinvest = > amt real → NO RECOG GAIN
taxpayer - applied if 40%+ cost of property (NOT real - AMT reinvest < amt real → RECOG to extent (def)
- • Child tax: NRf=$2k/child; AGES 0-16 estate) is placed during OCT–DEC; disallow • Tax-free Trans: NONRECOG of real G is
- • Dependent Tax: R=$500/”child”; AGES 17+ 1/2yr permanent; Wash Sale– only LOSS is deferred;
• Child/Depend. CARE Credit: “day care” - purpose: prevent large EQUIP EOY amt and limits ability to deduct losses
- UNDER age = 13 to receive credit; subsidize cost only receive 6 months of DEPREC • Sale of PRIM Resid. (121): loss on sale; Pers.
of daycare; 1 partner must have earnings (W2) - • Mid-M: EX. 8.8; NON-RES RE=39 yrs; RES resid=pers. Use ASS; real loss is NOT RECOG
- at least 8+hrs/dy within taxpayer home; RE= 27.5 - Gain on sale→can tax; partial/wholly under 121
handicapped age of 65+; relative=19+; caretaker - • Straight-line: REALTY (Personal PROP); EX - Exclude up to $250K($500k MFJ); OWN + USE for
report REV for INC-report 8.5 2+ years during 5-yr period, end on date of sale
• Credit = (rate→table(AGI)) * (Allowed EXP) - IGNORE SALVAGE value; fully DEPREC ASS; - any gain → LT CAP gain; if does NOT EXCEED
- Allowed EXP is LESSOR of… 1) Act. EXP; 2) DEPREC lowers basis = HIGHER gains $250k= NO RECOG GAIN
Statutory limit= $3k→ 1 kid; $6k→ 2+ kids; OR 3) • Listed PROP: personal+BUS property use – - Excep. To 2-yr rule: change in employment (>50mi)
INC of lower earner pass auto; transport; entertain/rec/amusement ; health issues; divorce/legal; death
- Excep.: FT student/disabled; Nonwork spouse: INC - BUS use: exceed >50%; less<50%--> - Max EXCL. AMT * (# qualify months / 24 months)
= $250/month→1 kid; $500/month→ 2+ kids straight-line Chapter 14:
• Earned INC Credit: (MAX amt of earned INC) * • Pass. AUTO: DON’T WANT – 4 wheels; for • Ord. ASS: BUS assets–INV, A/R, etc.
(Credit %) – lower incomes; include comp+SE earns streets/roads/highways; MAX=6k lbs unloaded • CAP Ass: Pers. use/INVEST ass (home, stocks)
- unearned/pass INC does NOT count; no excessive • Sports utility DEPREC limit: NOT pass. • Classification: tax status (CAP/1231/Ord);
INVEST INC ($11,600 in 2024) Vehicle; 6k–14k lbs; less than 6ft interior length – disposition (sale/exch/cas/theft/condem); Hold
• American OPP. Credit (AOC-Max): always better short-bed truck period (ST vs. LT)
- MAX = $2,500 for first 4 years: undergraduate - limits: luxury auto limits–do not apply; $30,500 • 1231: DEPREC ass. Held for 1+ yr; BEST option
(freshmen-senior); 40% is REFUND (partially); (2024) limits apply to 179 DED - EX. machinery/EQUIP, vehicle, building
allows for books and other course materials Chapter 13 - loss= Ord loss→ fully deduct; gain= LT CAP GAIN
- (tuition EXP * 100%) + (tuition EXP * 25%) • Realization=change in ownership/convert ASS → PREF rate (CAP ASS)
• Lifetime Learning Credit: graduate/masters → Cash – sale/disposal; Real Amt (usually sales - • 1250: 1231 real estate → generates gains; Add.
- MAX =$2k (20%) of qualify expense (up to $10k/yr) proceeds) – ADJ. Basis = Real. G/L apprec (accel. deprec): 1250 recapture; lack=
- NO books/materials; cannot be claimed in same yr • Recognized=taxable; 1250 UNrecapture; QIP if bonus DEPREC is used
as AOC; 100% NON-REFUND; applies to tuition - real G/L=REC G/L, unless exception is applied - • 1245: Personalty (1231 NOT 1250); MAN/PROD
- AOC nor Lifetime Learning uses ROOM / BOARD • Basic consideration:property basis=property - EX. oil tank in refinery; most DON’T apprec. in
• income limitations: phaseouts for wealthier cost value;
- credits reduced proportionally over $10k phaseout - COMPENSATION: ER transfers property to EE - Gain on DIS < total ACC. DEP→ total gain @
range ($20k for MFJ); Credit is completely at LESS THAN < property FMV DEPREC recapture (Ord INC)
eliminated when modified AGI reaches $90k ($180k - DIV: Corp transfers property to shareholder at - Gain on DIS > total ACC. DEP→ total ACC DEP is
for MFJ) LESS THAN < property FMV recaptured; gain in excess= 1231 gain/CAP gain;
- below phase: ELIGIBLE for FULL credit; above: - Basis of prop. acq. In purchase = FMV loss= 1231 losses
NOT ELIGIBLE for any credit; in between: credit is - Identify problems (stock): specific identification - COMP: 1) calculate 1245/50 gains; 1231 G/L; 2)
phased by allocated % is not possible → FIFO (default); specific identify; net all 1231 G/L together [loss offset gain]; 3) 1231
- (AGI – lower threshold)/Phaseout range=a= not average cost (open-ended mutual funds) 5-yr loockback
received → 100%--a= % allowable credit portion • Mult. ASS in lump-sum purchase: total cost - 25%: UNrecap. 1250 GAIN – rel estate
must be allocated among individual ASS - 28%: collect/small BUS stock gain– collectibles
• Purchase w/ goodwill: 1) assign purchase - CAP pref rate: any remaining net LT CAP GAIN
price to assets (EXCLUDE goodwill) based on • CORP CAP treatment: no net CAP gain alt. Tax
FMV; 2) assign resid. amt of purchase price to rate (no pref rate); CAP loss only offset CAP gain
goodwill (no $3k deduction→NO offset to TAX INC; 3yr for.,
• Gifts: carryover (same basis as owner)--> 5yr bck–always net LTC CAP from highest (28%
recipient pays NOTHING; cost basis provision= is always first)
donee basis = 0; done sells → REALIZED GAIN - if all LT CAP=losses→ NOT NET PROCEDURE
because signs are NOT OPP
• Death = DEPREC recapture goes away
WORD PROBLEMS
1) Couple has 1 dependent, 3rd yr in college. Dad
takes classes for MBA. What credits can they
claim? –ANSWER: AOC (Dependent) + Lifetime
learn (Dad)
2) Which credit is “refundable”? –ANSWER: Child
Tax credit (partially), NOT DEPENDENT TAX
3) Which best describes tax credit effect?
–ANSWER: reduces tax LIABILITY, NOT INC
4) Cal-yr taxpayer buys EQUIP=$383,600, placed in
service @4/1/24. EQUIP 7-yr recovery, used
half-year to use MACRS. –ANSWER: do NOT
subtract MACRS; (b)ADJ. Basis in 2025=
383,600–2024 macrs– 2025 macrs= 234,848
(c)2026MACRS DEP if dispose on 2/9/26= 8.3
exhibit (0.1749) * 383,600 * 50% half-year
convention = $33,546
5) 7yr ASS on 5/9/24 for $80k. No 179, no add 1styr
DEP. BUT, assume 10/1/24 purchase date.
Calculate cost recovery for 2024, 2025. –ANSWER:
‘24=80K * EX.8.4 (3.57%) = 2,856; ‘25= 80K *
EX.8.4 (27.55%) = 22,040
6) 5/5/24, buy and placed in service a hotel. Hotel
=$10.8 mil, land =$1.2 mil ($12 mil total). Calculate
cost recovery DED for ‘24 and ‘34. –ANSWER:
‘24= $10.8 mil * EX.8.8 (1.605%) = 173,340; ‘34=
$10.8 mil * EX.8.8(2.5645)= 276,912
7) Buy small tools for $5k–12/21/24: only purchase
of TAN pers. prop. in ‘24. On 2024 tax return, how
many months of MACRS DEP can be claimed on
tools, NO 179 or bonus? –ANSWER: 1.5 months;
entity acquired over 40% of DEP ASS in last-Q →
mid-Q convention is used= use last Q of the year
8) Single, sell pers. resid=$750k. Bought house=
$400k 10 years ago. What is real/recog gain?
–ANSWER: Real G=$350k=750k–400k ; Recog
G= $100k= 350k–250k → 121 home-sell EXCL
allows to exclude 1st $250k gain
9) Same ^^^, married for 10yrs. What is real/rec
gain? –ANSWER: real gain = 350k; recog gain =
$0= 350K–500K→ $500k EXCL for MFJ
10) Same ^^^; tax def or tax free trans?
–ANSWER: tax-free trans; deferral= tax inc is
postponed, not avoided completely
11) Give ASS=$100k, bought= $10k years ago.
(A) gift @FMV=100K, you sell=$110k. What is
gain/loss? –ANSWER: receive carryover basis of
$10k → sales (110k) – cost basis (10k) = $100k
gain;
(B) gift @FMV=100k, sell=$90k. What is gain/loss?
–ANSWER: receive carryover of $10k → sales
($90k) – cost basis (10k) = $80K gain;
12) Give ASS=$10k, bought= $100k years ago.
(A) gift @FMV=10K, sell=$20k. What is gain/loss?
–ANSWER: $0 gain; built-in loss=dual basis→
depends on sell for gain or loss (prevents loss
shift)... basis is either 10k OR 100k. @ sales
prices=20k→in-between dual basis
(B) What tax advice would I give? –ANSWER:
preferable (tax perspective) to SELL asset →
recognize the loss → give $10k in cash
13) 3/1/24, sell building=$300k, adj. basis=$200k→
gain=$80k. Bought= $260k on 4/1/23→ dep=$30k
of special tax program. How should gain report on
2024 tax return? –ANSWER: Less than 1yr →
ordinary ASS→ total $80k=ordinary gain; ALT: if
held past 4/1/24→ 1231 ass= excess DEP
(straight–30k) → 1250 recapture; THE REST=
UNrecaptured 1250 gain
