Summary: R2 M1-3

Read the summary and the most important questions on R2 M1-3

• 1 Basis and Holding Period of Assets

• 1.1.1.1 Basis

• What is the initial basis of property for the taxpayer?

  Generally, the initial basis of property is the cost of such property to the taxpayer: amounts to purchase the property, prepare it for use, and place it into service.

• 1.1.1.4 Basis Spreading Adjustments (Stock Dividends and Stock Splits)

• What happens to the basis of property when a shareholder receives a nontaxable stock dividend or split?

  The shareholder must spread the basis of his or her original shares over both the original shares and the new shares received.
  
  MCQ-04752, MCQ-04759, MCQ-11068, MCQ-17482

• 1.1.2.1 General Rule: Donor's Rollover Cost Basis

• What is the cost basis of property acquired as a gift?

  Property acquired as a gift generally retains the cost basis (the net book value) it had in the hands of the donor at the time of the gift.
  MCQ-14657

• 1.1.2.2 Exception: Lower FMV at Date of Gift

• Suppose you sell property received as a gift. How do you calculate the gain if its FMV has appreciated from the donor's NBV?

  If the sale price is above the donor's net book value, The gain is based on the donor's adjusted basis
  
  TBS-002235,MCQ-16229, MCQ-01653, MCQ-01909, MCQ-14925, MCQ-27287

• Suppose you sell property received as a gift. How do you calculate the loss if its FMV has declined from the donor's NBV?

  • If the gift's sale price is now less than its fair market value on the gift date: the loss is based on the gift's FMV on its gift date
  • The gift's sale price is now less than the donor's rollover basis but more than its FMV on its gift date: the gift's new basis will be the selling price, so there is no loss

  
  TBS-002235, MCQ-11066, MCQ-06572, MCQ-01736, MCQ-08204

• 1.1.2.4 Holding Period

• What happens to a property's holding period when a gift is received?

  The recipient of the gift normally assumes the donor's holding period.
  
  However, if fair market value at the time of the gift is used as the basis of the gift, the holding period starts as of the date of the gift.
  
  MCQ-14925, MCQ-16229, MCQ-27288, MCQ-27287, TBS-002235

• 1.1.3.1 General Rule: FMV at Date of Death

• What is the basis for property acquired by bequest or inheritance?

  Property acquired by inheritance generally takes as its basis the step-up (or step‑down) to the fair market value at the date of the decedent's death.
  
  MCQ-05274, MCQ-06976, MCQ-14927, MCQ-24957, MCQ-27286, 
  TBS-002235

• 1.1.3.2 Alternate Valuation Date

• What conditions must be met to use the alternate valuation date for estate property valuation?

  The fair market value on an alternate date (the earlier of six months later/date of valuation, or the date of distribution/sale) may be used to value all of the estate property.
  
  The alternate valuation date is only available if its use lowers the entire gross estate and estate tax.
  TBS-002235

• 1.1.3.3 Holding Period

• How is inherited property classified in terms of its holding period?

  Inherited property is automatically considered to be long-term property regardless of how long it has actually been held.
  
  MCQ-24958, MCQ-14927, MCQ-24957, MCQ-27286

• 1.2.4 De Minimis Safe Harbor

• What is the de minimis safe harbor provision for expensing property?

  Businesses that immediately expense low-cost personal property may also immediately expense (deduct) up to a certain amount of those costs for income tax.
  A taxpayer with an applicable (audited) financial statement can deduct the amount paid per item costing up to $5,000. Otherwise, the amount is $2,500 per item.
  
  MCQ-12114, MCQ-12118