REG 3 Notes.docx - REG 3 Notes Module 1 \u2013 Basis and Holding Period of Assets Adjusted Basis and Holding Period of Assets Sold 1 Purchased Property o

REG 3 Notes.docx - REG 3 Notes Module 1 u2013 Basis and...

This preview shows page 1 - 2 out of 11 pages.

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,
Image of page 1
Image of page 2

You've reached the end of your free preview.

Want to read all 11 pages?

  • Spring '16
  • Depreciation, Taxation in the United States, TP

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture