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FTax IRGTB ch17 p001-014

FTax IRGTB ch17 p001-014 - 17 Property Transactions...

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Property Transactions: Dispositions of Trade or Business Property Solutions to Tax Research Problems 17-58 The research question is: decide whether the fact that the grandmother used the residence for personal purposes is relevant in determining the character of the property to the heir, R. If the grandmother s use of the property does determine the property s character for R, then R has a nondeductible loss on the sale of a personal-use asset. Otherwise, R has a § 1231 asset, the loss on which qualifies for favorable ordinary deduction treatment. 5- Based on the cited cases, the character of property in the hands of its owner is determined on the basis of how he or she uses it. The use by a prior owner, even a deceased benefactor, is not considered. R is, therefore, able to treat the loss as a § 1231 loss; and, since she has no other § 1231 transactions or capital asset transactions, deduct it as an ordinary deduction. Campbell , 5 T.C. 272 (1945), involved a taxpayer who inherited a residence from a parent. The taxpayer never occupied the home but offered it for sale or rent. It was never rented before being sold, and the court determined that it was sold, in a transaction entered into for profit. Crawford , 16 T.C. 678 (1951), dealt with a taxpayer who inherited most of a personal residence from her husband. She vacated the premises immediately and offered it for rent, and later purchased the remaining interest. Even though the property never rented, she held the property for income-producing purposes. 17-59 a. MACRS, and a 27.5-year life was required in 1989. D ¼ epreciation: Cost assignable to building ¼ $120,000 × 80% ¼ $96,000. Cost assignable to office ¼ $96,000 × 20% ¼ 19,200. Depreciation for 15 years ¼ $19,200 × 15 / 27.5 ¼ $10,473 (for 15 years and 1 month = $10,531). b. No, there is no Section 1250 recapture if the required straight line method is used. c. All of J s gain is excludable except any depreciation since 1996 (123.5 months depreciation ¼ $7,815) must be recaptured. The character of the gain is 25% gain. 17 17-1
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Property Transactions: Dispositions of Trade or Business Property Test Bank True or False 1. Both land and a building used as rental property and held for more than one year are § 1231 assets. 2. The portion of the gain on the sale of timber that qualifies for § 1231 treatment is only the difference between the fair market value at the beginning of the tax year of harvest and the adjusted basis of the timber. 3. Unharvested crops sold along with land do not qualify for § 1231 treatment, and therefore produce ordinary income at the time of the sale. 4. The long-term holding period under § 1231 for cattle and horses is 12 months; for other livestock, 24 months. 5. Three rental houses held by a person who earns her living as a physician are not § 1231 property since the activity does not constitute a trade or business.
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