Sales and Basis of assets Presented by: tom o’saben ea Michigan NATP Sales and Basis of assets Presented by: tom o’saben ea

Sales and Basis Topics Sale of Home and general home ownership issues Basis reduction following discharge of indebtedness Form 4797 Repairs vs capitalization and the de minimis safe harbor election Correcting missed depreciation Asset sale vs stock sale: what’s the difference? Partners adjusted basis vs shareholders adjusted basis Basis words and wisdom via the irs pubs

Sale of home issues starts on page 1 Have we become too complacent with the $250k/$500k exclusion under §121? Let’s revisit the deductibility of interest limitations as well as the other questions on page 1 The issue may be far deeper than who can deduct what interest Who owns the home?

Sale of home (cont’d) What constitutes “equitable” owner of a house? (page 2) What is that interest limitation? Does it depend on how the home is owned or where it is owned? Maybe—see page 4 Does sophy tells us its better not to be married? (page 5-6)

Sale of home (cont’d) Second home tax traps (page 7) 2008 congress changed the rules Periods of non qualified use must be considered See example on page 8

Taxes in converting rental property to personal residence page 8 Revisiting the §121 exclusion limits Example on page 9 Recapture of depreciation Allowed or allowable

Home office deduction and basis issues: standard or simplified( Home office deduction and basis issues: standard or simplified(?) page 9 Rules to follow…..

What about converting my home to rental and then selling it two years later……

Disposal of rental property with suspended passive losses The story of bob and mary on page 10 Before we tell the tale, why are losses suspended?

Basis reduction following discharge of indebtedness page 19 does getting out of repaying borrowed funds carry with it an inherit tax benefit? What are our basis issues here?

Form 4797 begins on page 27 Certainly we have some basis issues here don’t we? My goal is to convert the knowledge you already have and to remove the fear of the form 4797 by convincing you that you already know the answers you need…….convinced?

When 4797 is used…

When 4797 is used

When 4797 is used

When 4797 is used

Most common used code sections with 4797

Recapture provisions…

What’s treated as depreciation?

Depreciation recapture

§1250 property

§1250 property: 3 potential tax treatments

Reporting transactions on form 4797

Reporting transactions on form 4797

Recapture of previous §1231 losses page 36

Form 4797 part ii

Form 4797 part iii example

Form 4797 part iii example

Form 4797 part iv

Form 4797 part iv Is my 2-year-old computer, stored in a file cabinet, and only brought out to retrieve old records, still be used more than 50% for business?

Form 4797 part iv example

Form 4797 part iv observations Difference between §179 claimed and regular depreciation is reported where original §179 deduction was claimed Likely Schedule C or F, has potential S/E tax impact Income recapture amount restores that amount of basis to the asset Restored basis is depreciable

Depreciation recapture on like kind exchanges page 55 Could the sale of land have depreciation recapture??

Depreciation recapture on installment sales page 61

Disposition of section 179 property by a pass through entity page 65 Watch for the supplement to the k-1 The income from the section 179 disposition is not on the front of the k-1

Repair v cap and the 4797 page 68 Asset purchases of $2,500 of less treated as de minimis materials and supplies What happens upon disposition: Ordinary income? Back to whence the deduction came? Do nothing? Guidance seems to conclude that we do use Form 4797 but Part II meaning ordinary income treatment for the full sales price, no capital gain treatment for any part of the sale proceeds.

Final repair regs vs sec 179 and bonus depreciation page 76

Let’s also discuss cost segregation studies (nib) What’s the goal? Quicker depreciation? Segregation of assets among a given class life? Retiring of assets or components within a given class life?

Form 3115 missed depreciation an natp white paper page 84 How to become a hero to your client while making them comply with allowed or allowable…..

Let’s work through our example on the most up to date form 3115---page 97

Asset sale vs stock sale: what’s the difference? Page 105 Buyers viewpoint Sellers viewpoint Stock sale

Partner’s stock basis vs shareholder’s stock basis pages 108-109

Running the bases aka “who’s on first” when it comes to deductibility of losses (nib) Basis At risk Passive activity

Basis: the irs words and wisdom page 112 Basis begins with cost Capitalized costs go into basis Remember the non deductible home mortgage interest?

Sale of stocks and mutual funds page 114 Question is: what did you sell? If the answer is “ I don’t know” then likely you will be reporting on average cost basis

Uniform capitalization rules page 117

Deducting vs capitalizing costs page 123 Is the work a repair or improvement? Let’s go back to the b.a.r.

Basis other than cost page 130 Property received for services Bargain purchases Taxable exchanges Involuntary conversions Non taxable exchanges Like-kind exchanges

Property received as a gift page 138 You need to know the adjusted basis in the hands of the donor and the fair market value at the time it was given to you Fmv less than donor’s adjusted basis Gain or loss? For gain basis = donor’s basis For loss basis = fmv at time of gift Donor’s basis for a loss = no gain or loss

Basis in inherited property page 141 Fmv on date of death or alternate valuation date Except in 2010 Property held by surviving tenant Qualified joint interest Tenant by the entirety jtwros

Property changed to business or rental use page 144 Basis for depreciation = the lesser of The fmv on the date of change or Your adjusted basis on the date of change