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Outline_8_students - OUTLINE 8 BASIS RULES READING...

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OUTLINE 8 BASIS RULES April 27, 2011 READING ASSIGNMENT Read entire Chapter 14: Read Chapter 8: Page 8-5 (top of page until middle of page) Read Chapter 5 page 31 bottom (stock dividends) and Section 5.3 (gifts and inheritances) Read Ch. 4 Pages 19 bottom -21 (4.3 Income/basis of community property) Pages 21 bottom-22 through example 33 (basis of property received in a divorce) Read Chapter 1 pages 11 middle-14 middle (Taxes on transfers at death) Read Ch 6 : Page 27 Middle-28 through example 37 (Basis of property received in a transaction between related parties); Basis Holding Period a. Purchase b Property received in a divorce a. Property received by gift i. Sale by donee at a gain ii. Sale by donee at a loss iii. Neither a gain nor a loss b. Property received by inheritance i. Date of death valuation ii. Alternative valuation date iii. Basis of property inherited by spouse 1. Community property 2. Common law states iv. Basis of stock sold where there are multiple purchases 1. FIFO 2. Specific Identification 3. Basis of stock sold where dividends were reinvested v. Stock received in stock split or stock dividend vi. Stock acquired in a wash sale c. Basis of assets acquired in purchase of a business d. Property converted from personal use to business use i. Property converted from 1
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business use to personal use e. Property sold to a related party f. Property received in a Section 1031 like- kind exchange (Chapter 15) g. Property received in an involuntary conversion (Chapter 15) II. Property received in a divorce a. Read Chapter 4 Pages 4-21 to 4-22 b. Question i. John and Hilda were married for several years. On 3/1/2009 they were granted a divorce. They divided the assets. Hilda received the house with an adjusted basis of $300,000 and a FMV of $700,000. John received stocks with an adjusted basis of $500,000 and a FMV of $700,000. Is the division fair? III. Depreciable basis a. Purchased property i. Basis is cost b. Improvements or additions i. Depreciated separately from property c. Property converted from personal use to business or income-producing use 1. Basis is: The lower of adjusted basis or FMV at time property is converted 2. QUESTION : On 1/1/1999 Marty acquires a personal residence for $850,000 (The FMV of the land is $300,000 and building is $550,000). He adds an addition to the house in 2002 for $50,000. In 2008 he loses his job and is unable to sell the house due to a depressed real estate market. He moves out of the house and rents it out on 3/1/2008. On 3/1/2008 the FMV of the property was $650,000 (land $200,000 and building $450,000). Can Marty depreciate the house on 1/1/1999? Can Marty depreciate the house on 3/1/2008? What is Marty’s basis for depreciation? 3. QUESTION: If the FMV of the building was $625,000 on 3/1/2008 what is his depreciable basis? IV. ESTATE AND GIFT TAX 2
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a. Introduction If you give someone money or property during your life, you may be subject to federal gift tax. The money and property you own when you die (your estate) may be subject to federal estate tax and the gross income of your estate may be subject to federal income tax. The purpose of this publication is to give you a general understanding of when these taxes apply and when they do not. It explains how much money or property
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