[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Oh hello zubairs,

Answer (D) is correct.

Generally, if a shareholder purchases stock, the shareholder’s original basis in the stock is its cost. If a shareholder receives stock in exchange for property, the basis is the same as the property’s basis. If a shareholder lends money to the S corporation, the basis is usually the amount of the loan. If a shareholder guarantees a third-party loan to an S corporation, the loan does not increase the shareholder’s basis. If, however, the shareholder makes payments on the loan, the payments increase the shareholder’s basis. The amount of losses and deductions an S corporation shareholder can claim is limited to the adjusted basis of the shareholder’s stock. Since Bill lent $20,000 to Tax, Inc., he must increase his basis by the amount of the loan. Therefore, Bill’s basis is $60,000, and the amount of losses and deductions an S corporation shareholder can claim is limited to the adjusted basis of the shareholder’s stock.

[princeCPA]

This question really bothered me.

Bearing is an individual taxpayer who uses the filing status of single. A review of Bearing's Year 2 records disclosed the following tax information:

Wages $ 18,000

Taxable interest and qualifying dividends 4,000

Schedule C trucking business net income 32,000

Rental (loss) from residential property (35,000)

Limited partnership (loss) (5,000)

Bearing actively participated in the rental property and was a limited partner in the partnership. Bearing had sufficient amounts at risk for the rental property and the partnership. What is Bearing's Year 2 adjusted gross income?

A.

$14,000

B.

$19,000

C.

$29,000

D.

$54,000

BEC 79
FAR 86
AUD 79
REG 90

[StRiKeR32]

@princeCPA

I believe the answer is “C”

18,000 + 4,000 + 32,000 = 54,000

Subtract $25,000 from the passive active loss because the “mom & pop exception rule ” is used in this case since the rental passive active loss has no rental passive income to go against, and the AGI will obviously be below $100,000(when phase out begins) so the full $25,000 exception is used for this case.

54,000 – 25,000 = $29,000

[princeCPA]

@StRiKeR32 you are correct. I am always confused with the language with rental activities. To qualify for the 25,000 deduction, you should actively participate in the activity and own at least 10% of the activity.

BEC 79
FAR 86
AUD 79
REG 90

[PasstheCPA7]

Hi Guys,

Anyone want to help out with this S-Corp question? Not sure.

Clip-Joint, an S corporation hair salon, distributes land with an adjusted basis of $10,000 and a fair market value of $50,000 to its sole shareholder, Louise. Louise's basis in the corporate stock before distribution is $90,000. What is Louise's basis in the land after the distribution?

My other question is this: If the question “were” a C-Corp and they were asking about the C-Corp basis in the land after the distribution and what is the C-Corp's shareholder basis in the land after distribution.. What's the answer then?

Thanks!

[princeCPA]

When both C Corp and S Corp transfer appreciated property to their shareholders, they recognize gain. The shareholder's basis on the property will be the FMV. To answer your question Loui's basis will be $50,000. Let me now if this answer is not correct. This is my understanding on this issue.

BEC 79
FAR 86
AUD 79
REG 90

[PasstheCPA7]

@ princeCPA: You're correct. Louise's basis in the land AFTER the distribution is $50,000. Now, let me ask you this. If this question “were” a C-Corp, would the C-Corp shareholder also have a basis in the land AFTER the distribution of $50,000?

Also – what would be the C-Corporation entity's basis in the land after the distribution? Would that be zero? if so, why?

[PasstheCPA7]

You see, let me tell you my confusion here. I am not sure if you use Becker or not. But, on Page R3-55, Becker is showing the Shareholder basis in S Corporation Stock BASE formula. It's this: Initial Basis + Income items – distribution to shareholders = Ending Basis.

So, when I tried solving this question on Louise, I was trying to use the BASE formula (like Becker gives us). But, how come this question on Louise does NOT require us to use the Base formula? In other words, IF the question is asking us what is the basis AFTER the distribution – don't we need to know what our Beginning basis was and then we should subtract out the distribution of land to arrive at the ending basis? We don't do that in this question. Why?

Sorry if my question is confusing!

[princeCPA]

Two things here: the question is to find the basis on the land not the ending basis of Loui. If the question was to find the ending basis then we use ur formula.

BEC 79
FAR 86
AUD 79
REG 90

[PasstheCPA7]

@ prince: But, if the question asks: What is the basis AFTER the distribution.. doesn't that assume ending basis? Because we have Beginning Basis – Distribution = Ending basis. Do you see my logic?

[PasstheCPA7]

Also, what would be the C-Corp basis after the land distribution and what's the S-Corp basis after the land distribution?

[Double-entry Deviant]

PasstheCPA7 – I think you're overthinking this. I believe you're confusing the income calc – using BASE – with the determination of basis and distribution of an asset to an S corp or C corp owner.

To determine the latter, you need to use the FMV as established.

If I can find more detailed info somewhere outside of Becker, I'll post it here! All the best!

REG: 5/30/15 - 77
FAR: TBD
BEC: 8/31/15 - 70, 73, 1/8/16 - 77
AUD: 6/1/16- 73, 8/2/16

[Anonymous]

ugh stupid work, I could have been studying right now

[CPAfit]

@anna same here, trying to squeeze in MCQs here and there though. By the way, you look in great shape and I'm pretty sure you are going to nail it! What date are you testing?

[Anonymous]

I keep forgetting whole concepts that I just knew last week, it's like I can't retain 100% of info in any given day. not sure how is that going to work out, I'll have to get really lucky

May 30th!!

[Author]

Replies