[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

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

[leglock]

It's a lot of semantics more than anything, just like you can use 3000 of cap loss against ordinary income, but Section 1244 loss is actually considered ordinary loss not capital (which can obviously be used against ordinary income)..

[Mamabear]

Anyone using Wiley 2014 book? On page 663 it states that a gain is recognized on a sale between a partnership and a related person (owns more than 50% of the capital in the partnership, etc) and treated as ordinary income if the property is not a a capital asset in the hands of the transferee. On the next page it says the same thing, except that it is treated as ordinary income if the property is depreciable property in the hands of the transferee. So my question is when is it NOT treated as ordinary income when a gain is made on sale between partnership and related party? This is under Transactions with Controlled Partnerships.

CPA Exam - Finally DONE (November 2014)
BEC (08/10/13) 80
AUD (08/24/13) 65 (11/13/13) 85
FAR (04/12/14) 81
REG (07/19/14) 69 (11/29/14) 87!!

[NotTooLate]

Try to summarize what I learned. Please correct me if I am wrong:

For qualified tuition and related expenses

There are two ways to claim qualified tuition and related expenses paid:

1. As above the line deduction

2. As American Opportunity Tax credit

Both have phase-out rules. The consequences are different at these points:

If you deduct as above the line deductions, it will decrease your AGI. This will affect those itemized deductions subject to a percentage of AGI (2%, like miscellaneous expense, 7.5% (medical expenses for age over 65), or 10%(medical expenses for individual age under 65, or casualty loss).

If you take as American opportunity credit, the AGI might higher. But the amount taken can directly toward your tax liability, and it’s partially refundable.

AUD:5/30/2013 (74, so close!) 5/2014 (90 first pass!)
REG: 2/27/2015 (85)
FAR: 8/2011(64) 4/2012(74) 8/31/2015 (80 finally!)
BEC: 11/24/2015 Let's do this!

[Anonymous]

For AMT,

part of the equation is: Alternative minimum tax base x tax computation= tentative AMT tax.

The becker book doesn't go into detail with this – what is this tax computation %? I'm getting 26% for the first 182500,and 28% in excess of that, but I'm not sure.

Does anyone know?

[Anonymous]

Joining the group, although technically, I should be on the Q1 2015 but it's still not open. Planning to take REG early January.

[Anonymous]

Nice, decided to hold BEC off until the end?

Can someone explain to me how the alimony recapture works? I just can't get it down.

[taxgeek83]

@Mama – I don't know if this is going to help, but the rule refers to IRC Section 707(b). My understanding is that it's always going to be ordinary income unless, in the hands of the transferee (the party receiving the asset in the sale transaction), it's a capital asset as defined in IRC Section 1221. Treasury Reg 1.1221 is a little more helpful than the code section as far as defining what is “not” a capital asset. IRC Section 707 itself is essentially there to prevent abusive transactions in controlling partnerships.

Here are a couple of links I found that might help explain the “depreciable property” part:

https://media.straffordpub.com/products/irc-section-707-transactions-between-partnerships-and-their-members-2012-03-06/presentation.pdf

https://taxtaxtax.com/pship/study/lect6.htm

The second link finally put it together for me. In relevant part:

“Gain recharacterization

Code Section 707(b)(2) may modify the normal result of a sale between a partnership and a person who owns a controlling interest when a gain is recognized. This provision prevents the selling party from recognizing a capital gain on a sale that is followed by the purchasing party claiming a depreciation deduction based upon the property's new increased basis. Accordingly, the seller must recognize ordinary income on the sale. Section 707(b)(2) applies only when the property that is sold at a gain is not a capital asset in the transferree's hands. It makes no difference that the character of the property was in the hands of the transferor. Regs. Sec. 1.707-1(b)(2)”

So essentially it prevents someone from setting up a partnership, selling the asset to the partnership, getting the benefit of capital gain on the sale, and then the benefit of a nice depreciation deduction on the new basis (the purchase price), which would ultimately pass through to the partner and be deducted against his ordinary income.

Tax isn't necessarily the easiest subject out there, but to me, Subchapter K has always been the hardest to understand. 🙂

[taxgeek83]

@NotTooLate – That's my understanding. Also, the American Opportunity Credit allows books in the calculation of qualified expenses, whereas the Tuition and Fees deduction does not. I think the income limitations might be different as well; however, I'm not sure what they are off the top of my head.

@CPAHOPEFUL – Try the following two links:

https://www.forbes.com/sites/kellyphillipserb/2013/04/02/taxes-from-a-to-z-2013-r-is-for-recapture/

https://www.irs.gov/publications/p17/ch18.html#en_US_2013_publink1000172912

The Forbes article explains it pretty well.

[NotTooLate]

@CPAby2015, this is what I memorized:

Alimony recapture starts from second year first,

the second year payment – $15,000 = A (this is the second year recapture)

the first year payment – ($15,000 – (second year payment + third year payment) – A)/2), this is the first recapture

Add these two together, the person who paid alimony needs to include this amount in gross income on the third year tax return, and person who receives alimony can deduct same amount in gross income.

@taxgeek83, thanks for the supplement information. That is a very important difference!

AUD:5/30/2013 (74, so close!) 5/2014 (90 first pass!)
REG: 2/27/2015 (85)
FAR: 8/2011(64) 4/2012(74) 8/31/2015 (80 finally!)
BEC: 11/24/2015 Let's do this!

[Anonymous]

Thank you! So I keep getting confused about the averaging from the 2nd and 3rd years. And then AMT is terrible for corporations now that they add the ACE requirements.

[mmp7183]

i just found this somewhere. hope this can help those who will take REG when doing TBSs. Start getting familiar with the full IRC code. i was hoping though that I have seen this before I took the exam last Monday.

https://www.law.cornell.edu/uscode/text/26

Oh-Hey-Yoh Candidate

FAR - 89 Dec 2013 (CPAExcel)
AUD - 89 Feb 2014 (CPAExcel)
BEC - 83 Aug 2014 (Becker)
REG - 85 Oct 2014 (Becker)

CMA (Aug 2011), CFSA (Dec 2008), Philippine CPA (Nov 2004)

[Evwy_Mom]

@CPAHOPEFUL11

For Alimony Recapture (I'm doing this from memory so someone correct me if I've made a mistake, but I think it's right):

I start by listing the payments in order and aside from the first step, keep things in that order.

2011 = 70,000

2012 = 40,000

2013 = 0

Start with year 2 (2012, for my example): 40,000 – 15,000 = 25,000 = Recapture Amount = this is the amount by which you reduce the year 2 payment ($40,000); by reducing that $40,000 payment by the recapture amount, $25,000, you are essentially causing the payer to have to claim more gross income. (If you reduced the 2011 payment by the total year two amount, $40,000, it would cause them to claim less in gross income).

List payments by year again:

2011

---

> 70,000

2012 = 40,000-25,000 = 15,000

2013 +

---

>0

Total payments =

---

> $15,000

divided by two years =

---

<7,500>

Less:

---

<15,000>

= Year 1 recapture

---

= 47,500

Year 1 recapture = $47,500

Year 2 recapture = $25,000

= Total Recapture = $72,500

I found that keeping things in year order helped organize it in my mind, so once you know your year 2 recapture, it's pretty much plugging the numbers you have by year. I hope this helps.

AUD = 85
FAR = 79
BEC = 79
REG = 65, 72, 75!

I AM DONE!!

[Anonymous]

Thanks, making more sense now. For the DRD, if it is 20% are we to assume they are allowed an 80% deduction?

[shankysays]

@CPAHOPEFUL11 – yes. Similarly, if they have 80% control, you can assume they get the 100% DRD. I wish they wouldn't give you ones on the cusp like that, but they do.

BEC - 72, 82! ✓
FAR - 80! ✓
AUD - 70, 92! ✓
REG - 74, 78! ✓

Licensed CPA 5/2015

[Anonymous]

I am in R4 in Becker. Reg has so many freaking rules that trip you up!

[Author]

Replies