If personal use assets are converted to business use

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25. If personal use assets are converted to business use, the basis for business depreciation is the greater of adjusted basis or fair market value.
26. Although gains on sales between related parties are recognized, losses are not.
27. Property inherited is treated as long-term property.
28. The basis of inherited property is usually the fair market value at date of death. However, any amount of inherited property representing income realized but not recognized by the decedent is not stepped up to fair market value at date of death.
29. Long-term capital gains, dividends, and interest on bonds receive preferential tax rates to investors.
30. A loss on the sale of a Section 1231 asset is an ordinary loss and a gain may receive a preferential tax rate unless the gain is recaptured as ordinary income under one of the recapture provisions.
31. If real estate used in a business or rental was placed in service after 1986, any gain up to depreciation taken will be taxed at a maximum rate of 25%.
32. Tracey exchanges stock in a corporation for inventory to sell in her business. The stock has a basis of $30,000 but the inventory has a fair market value of $50,000. Tracey has a carryover basis of $30,000 in the inventory.
33. 33. The education credits (American Opportunity and Lifetime Learning) are income tested.
34. If an activity is classified as a hobby, all income is taxable and no deductions are allowed against income.
35. Corporations may pick any taxable year. Individuals and S Corps generally must use a calendar year. Partnerships generally must use the tax year that matches the tax year of their majority partners.
36. Joanne is an individual in the top marginal tax bracket. Joanne made estimated payments on her most recent year’s tax liability equal to her total tax liability for the prior year. Since Joanne paid 100% of the prior year tax liability, she is not liable for a penalty for underpayment of estimated tax.

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