REG Study Group – Q1 2018 - Page 14

Yes Katie, that is how I am reading it as well.
Remember the corporation is a separate entity, so most transactions between corp and shareholder should appear as “arms length” and FMV.
The partnership is an “extension of the partner”, and is allowed the basis transfer on assets in and out. P'ships are still separate entities, just different rules.
There are specific rules surrounding each, so you need to be sure to know all the rules.

Dependents claimed under a parent. Their tax depends on their amount of income, specifically unearned income. If over a certain threshold there is a kiddie tax involved where they are taxed at the parents rate. If its just a kid with a W2 for 2 or 3 grand, they file as a dependent of another. They don't claim themselves and pay at the lowest rate, and usually get any Fed W/H refunded to them.

@Recked

I did the AICPA REG practice exam back in December. Back then, I had similar scores on the multiple choice but really bombed the SIMs. This was before I understood section 1033, MACRs, etc. I plan to do it again on Tuesday or Wednesday.

Shoot for 1.5 hours to knock out the 76 MCQ and 2.5 hours for the 7 SIMs.

@Recked

Thanks for the info! I just took a look at it. I was told both by AICPA and NASBA that we wouldn't get the 2018 format of the exam until April 1, 2018. As for the actual AICPA practice test, I am impressed. This is starting to look more like a legit practice test and less like an appetizer.

I've been trying to tie up some loose ends in entity taxation. Here are some of my notes from corporations and section 351.

Section 351:

– control is ownership of 80% or more of the voting power of stock and 80% or more of the shares of each class of nonvoting stock of the corporation
– stock exchanged for services does not count towards 80%, the FMV of the stock is gross income to the shareholder, and the shareholder’s basis in the stock exchanged for services is the FMV
– if liabilities relieved exceed of FMV of property, use number total of liabilities minus adjusted basis of property to calculate gain
– if liabilities are transferred in property for stock in tax avoidance, recognize the entire gain

Section 351 control test met, no boot received in cash or liabilities relieved:

Gain recognized by shareholder = no gain or loss is recognized

Basis in shareholder’s stock = adjusted basis of property contributed + gain recognized by shareholder – cash received – liabilities relieved
Corp.’s basis in property = adjusted basis of property contributed + gain recognized by shareholder

Section 351 control test met, boot received in cash and liabilities relieved (less than FMV of property contributed):

Gain recognized by shareholder = cash received

Basis in shareholder’s stock = adjusted basis of property + gain recognized by shareholder – cash received – liabilities relieved
Corp.’s basis in property = adjusted basis of property contributed + gain recognized by shareholder

Section 351 control test not met, boot received in cash, and liabilities relieved (less than FMV of property contributed):

Gain recognized by shareholder = FMV of property contributed – adjusted basis of property

Basis in shareholder’s stock = adjusted basis of property + gain recognized by shareholder – cash received – liabilities relieved
Corp.’s basis in property = adjusted basis of property + gain recognized by shareholder

Back in c corps and get a 40% and then a 90%.
I haven't had a 40 on a quiz since FAR.
Demoralizing.

Actual basis = 20k
Depreciable basis = 15k for 75% business use.
Remember half year depr since asset was sold in year 2.
16% instead of 32% per MACRS schedule.

I got caught on the same issue. I had the 75% limitation for business use, but missed that half year convention.

I think this is the problem you are talking about, recalling it from memory from yesterday.

Don't forget to try the 2017 sample exam too as there is another SIM that is not in 2018 version.

I should not have said Depreciable Basis.
Just so we don't confuse anyone else.
The full 20k is the depreciable basis, but then the actual depreciation expense is limited by business use %.
So you would take the full 20k x 20% = 4000 in the first year, limited to 75% = 3000 depreciation expense
year 2 20k x 32% (16% for half year) = 3200 limited to 75% for business use = 2400 Depr Exp
20000 – 3000 – 2400 = 14,600

The business use % limit will apply for each year, and can change depending on how much the asset is used in business.
I just thought it was important to clarify so no one gets confused.

I noticed this question (perhaps intentionally) used depreciation amounts that are LOWER than the max threshold for personal autos.
Keep in mind those limits would have applied if business use was 100%.
Not sure if the exam will go that in depth, but its important to know.

The adjusted basis would be 150k.
You can't depreciate on the 300k or you would be double dipping, ie: claiming depreciation in years 2-5 that was already taken in year 1.
I also think you would get sec179, plus the 50% bonus, leaving 150k that would then begin depreciation in year 1 under MACRS for an additional 20% of the remaining 150k.