REG Study Group – Q1 2018 - Page 17

found an example from an old-ish textbook. Have the rules changed on it or am I misinterpreting something?

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scatter –
I am going to assume that is a FAR or financial accounting textbook.
I believe mid qtr convention still exists, but not as a part of tax.
My review book says mid qtr is only used when >40% of assets are purchased in the last qtr of the year.
The IRS does not want you to get a half year of depreciation on assets that were purchased at the end of the year, so mid qtr convention would apply to all assets placed in service for that year.

Confirmed the above in Gleim book as well.

Lentil
The actual auto expenses will still be deducted, subject to business use %.
Just the depreciation is the only thing affecting the basis in the asset.

Hey Guys,
This is my first time posting on the forum. But I always review the different insights posted and they are really helpful.

So my question is on the 2018 AICPA practice exam. How is Fred Patel’s stock basis at Jan. 1, year 2 calculated?

P.S: I also take the REG exam on 01/18 as well.

@Lentil,

Thanks. Also I appreciate all the information you contribute. Really helped me studying for FAR and REG.

I’m taking REG on Thursday as well. How do you feel in terms of knowledge of the material?

BTW, I am looking at the AICPA 2017 Practice REG exam and I don't see any reason to do it other than to experience the old CPA exam format. The 2017 and 2018 practice exams have the same problems and the 2018 actually gives you 5 more MC and one more SIM. The 2017 exam also uses Citrix which I hate because its slow and crashes a lot.

@Recked I think you mentioned this already so forgive me if I am repeating it.

Bottom line, just do the 2018 AICPA practice exam.

I have a question for you guys. This is from a GLEIM simulation on property taxation. See below.

Andrew purchased a shopping mall for $700,000 in 1982. This year, Andrew sold the shopping mall for $425,000. Before selling the shopping mall, Andrew claimed $500,000 in accelerated depreciation (straight-line depreciation would have been $250,000).

Property Sale

I, Andrew , agree to exchange a shopping mall for $425,000 .
Date purchased: 1982
Amount purchased: $700,000
Accelerated depreciation: $500,000
Straight-line depreciation: $250,000
Signed: Andrew
Date: 2017

Amount realized = $425,000
Adjusted basis = $700,000-$500,000=$200,000
Gain realized = $425,000-$200,000 = $225,000

Gain recognized = Gleim says the answer is $225K absent any “nonrecognition rules” and I think its $0 based on the “lessor of realized gain or boot received rule for like-kind exchanges”.

Why is it $225K and not $0? What am I missing?

Section 1250 recapture = gain recognized on the disposition of this property is recaptured as ordinary income to the extent of the lesser of the excess of accelerated depreciation taken over straight-line depreciation taken or gain recognized.

$500K-$250K = $250K excess accelerated depreciation over S/L, so all $225K of the gain recognized per GLEIM would be section 1250 recapture income and none of it would be section 1231 gain

Thanks!

@Lentil, I struggled with the same problem.

If 500 were sold @ 20 and their basis was 22, the total loss would be 1,000. But since 100 of these shares were part of a wash sale, their loss (2 x 100 = 200) is disallowed. This means that the total allowed loss is 1000-200=800.

The solution says the 18 is only relevant in determining the basis of those 100 shares.

Also of note.
2017 sample has 5 SIMs. 2018 has 6 SIMs, but only 4 of those appear on the 2017 sample.
Meaning there is one extra SIM on 2017 that you should take a look at.
I suggest taking a look at both just to see as much as you possibly can. You don't need to rework all the problems, just look for the extra one.