[CPAchronicles]

Hi I have a few questions on things I am confused about in REG.

As for gift tax, when is the gift tax limited to $25 vs. $14000? Is the $25 limit just for businesses (sole proprietorship) ?

As for Basis of Property transferred when is the basis the GREATER of liabilities assumed or basis transferred? I am slightly confused because I know for partnerships, the basis is the basis transferred plus the gain and I just want to be able to identify these small differences.

Thanks!

[Frutch32]

The gift tax is a $14,000 exclusion for 2014 to applies to each person you are gifting. The $25 dollars you are referring to is a business deduction unrelated to a gift tax return.

As for basis are you talking about corporations or partnerships, as they have different rules. Additionally are you asking about the basis to the corporation/partnership or to the individual, these will be different amounts.

FAR (1/15/14)- 92
AUD (5/05/14)- 94
BEC (5/28/14)- 85

[CPAchronicles]

To be honest I am not sure i am just confused.. do you know which entity uses the greater of liability assumed or basis?

[Jspann225]

@CPAchronicles C Corporations use the greater of assumed liabilities or adjusted basis when determining the corporation's basis in the asset. The way I think of it is excess liabilities over partner's adjusted basis = boot, and any cash received by the partner = boot. Corporation's Adjusted Basis = Adjusted Basis of the Shareholder + Boot. The shareholder's basis = Adjusted basis of asset – liabilities assumed by the corporation. The shareholder will be taxed on boot received.

Partnership basis is calculated much in the same way as C Corp basis, except you must remember that the partner will still be responsible for part of the liabilities the partnership assumes from himself and the other partners.

The biggest difference in partnership and corporation basis is distributions and liquidation.

For distributions, the partners will not be taxed on distributions received from the partnership, but shareholder will get taxed on the distributions (dividends) they receive if the have basis and the company has E&P. If the corporation has no E&P and the shareholder has basis the distributions are not taxed. If the corporation has no E&P and the shareholder has no basis the distribution is taxed as a capital gain distribution

For liquidations the partner will only be taxed on cash received in excess of his basis. While a shareholder will be taxed on the FMV of the assets received in excess of his basis.

I know that this is really simplified, but it will help to solve most of the basis questions.

FAR - 93 - 7/1/14
AUD - 94 - 7/25/14
REG - 92 - 8/30/14
BEC - 89 - 10/6/14

[CPAchronicles]

@Jspann225 and @Frutch32 thanks so much that helps a lot!

I guess if I keep the idea of corporations and double taxation that will help me remember this.

Since for partners distributions are nontaxable, but for SH dividends are taxable (dbl taxation).

Also in terms of the liabilities, I will remember that corporations give SH protection other their SH liabilities. Partnerships are liable – which makes the liabilities assumed in the partnership (unlike the corporation) make sense.

thanks again!

[Author]

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