REG 3 Notes Module 1 – Basis and Holding Period of Assets Adjusted Basis and Holding Period of Assets Sold Purchased Property o Basis = Cost + Capital Improvements Cost = amounts to purchase property, prepare it for use, place it into service [i.e. shipping costs, installation costs, sales taxes, testing costs] o Holding Period = Purchase Date o Reduce Basis for < Accumulated Depreciation > Basis reduced for amount of any depreciation, allowed or allowable, taken with respect to that asset by TP Adjusted Basis = basis reduced by accumulated depreciation o “Spreading” Adjustments Taxable Income Basis Taxable Transactions FMV FMV Nontaxable Transactions No NBV Gifted Property Basis for Gain/Loss Purposes o GR: Donor’s Rollover Cost Basis = Rollover Cost = NBV Property acquired as gift retains donor’s cost basis at time of gift Basis increased by any gift tax paid attributed to net appreciation in gift value Holding Period: Recipient of gift assumes donor’s holding period o Exception: FMV < Donor’s Rollover Cost Basis @ Date of Gift Asset’s Future Sell Price determines Basis Gift Sold in Future: Sale Price > Donor’s Rollover Basis Gain Basis = Sale Price – Rollover Basis Sale Price < FMV Loss Basis = FMV at Date of Gift Holding Period: starts as of date of gift FMV < Sale Price < Rollover Basis Basis = Sale Price; No gain/loss recognized o Gifted Property Basis for Depreciation: basis is lesser of: Donor’s Adjusted Basis at date of gift; or FMV at date of gift Accumulated Depreciation then reduces gain/loss basis before determining gain/loss on sale o Holding Period = Rollover Cost & Original Holding Period Inherited Property Basis = Step-Up [Down] to FMV o GR: FMV @ Date of Death Property acquired by bequest/inheritance basis = step-up (step-down) to FMV at date of decedent’s death o Alternative Valuation Date = FMV If Alternate Valuation Date elected basis of asset is the FMV at the earlier of: Six months after date of death; or Date of distribution of asset o Holding Period = “Long” journey out of the grave Inherited Property automatically considered long-term property regardless of actual time held Capitalize or Expense o IRS determines if costs incurred in acquiring, maintaining, or improving tangible property must be capitalized o If capitalization not required , costs considered repairs and are expensed Tangible Property Must Be Capitalized GR: all tangible property that is not inventory must be capitalized, unless there’s an exception o Materials and Supplies [expense] Materials & Supplies = item cost < $200 or economic life < 12 months Qualified Tangible Property: Non-Incidental deductible in year of consumption Incidental deductible in year paid o Amounts Paid to Acquire or Produce Property [capitalize] Amounts paid or incurred to produce or acquire tangible and intangible property must be capitalized o Improvements [capitalize] Single Unit of Property capitalize if result in betterment to property, adapt property to new or different use,
You've reached the end of your free preview.
Want to read all 11 pages?
- Spring '16
- Depreciation, Taxation in the United States, TP