This course examines the U.S. federal tax system as it relates to property transactions of business owners and shareholders. Topics include cost recovery, such as depreciation, amortization, and depletion; calculation of realized versus recognized gains and losses; evaluation of the potential tax effects of nontaxable exchanges; and the combining, or netting, gains and losses that are different in nature.
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Course 2 of 5 in the U.S. Federal Taxation Specialization
Syllabus
WEEK 1
Introduction to the Course
In this module, you will become familiar with the course, your instructor and your classmates, and our learning environment. This orientation will also help you obtain the technical skills required to navigate and be successful in this course.
Module 1 Cost Recovery: Depreciation
In this module, you will be introduced to concepts of cost recovery used by U.S. Taxpayers. The nature of property will be discussed designating the difference between realty and personalty. The Modified Accelerated Cost Recovery System (MACRS) will be explained along with its classification of both real and personal assets as well as applicable conventions used in depreciating property. Finally, learners will discover how to use the tax depreciation tables to aid in the determination of allowable cost recovery deductions.
WEEK 2
Depreciation: Realty, Bonus, §179, and Listed Property
In this module, you will take a deeper dive into concepts of cost recovery used in the U.S. Federal tax structure. This deeper dive begins with a discussion of the proper methods for depreciating business use realty. Next, you will learn about two electives, known as Section 179 depreciation and additional first year (or bonus) depreciation, available to taxpayers. Last, you will learn about listed property that the IRS places limitations on the deductibility.
WEEK 3
Amortization and Depletion
In this module, you will take a look at the remaining concepts of cost recovery used in the U.S. Federal tax structure. In the previous module, you learned about depreciation taken on tangible personal and real property. In this module, you will learn how intangible personal and real property costs are recovered through amortization, and which kinds of intangible property are eligible to be amortized. You will also learn how natural resource costs are recovered through depletion deductions. Finally, you will learn about the non-deductibility of start-up expenditures and their amortization.
WEEK 4
Property Transactions: Gains, Losses, and Adjusted Basis
In this module, you will take a deep dive into property transactions, specifically disposals, and their tax consequences under U.S. federal tax law. First, we’ll begin by discussing the economic concept of amount realized. Next, we’ll discuss differences between the amount and gains or losses realized versus recognized, such as deferred or postponed gains and disallowed losses. Last, we’ll discuss the three main ways property basis is established, namely cost basis, gift basis, and inheritance basis.
WEEK 5
Property Transactions: Gains, Losses, and Like-Kind Exchanges
In this module, you will learn about unique property transactions where gains and/or losses are deferred. First, we’ll discuss circumstances where certain losses on the disposal of property are not allowed to be recognized. Next, we’ll discover what wash sales are and the dates that determine whether or not the losses can be recognized. Next, we’ll discuss a type of non-taxable exchange called “like-kind exchange,” which allows properties to be exchanged with no tax recognition, and the rules governing its tax deferred status. Next, we’ll discuss specific circumstances where part of the non-taxable transaction actually becomes taxable due to receipt of non-like-kind property, called boot. Last, we’ll talk about what basis the newly exchanged property should have, and what the holding period should be.
WEEK 6
Property Transactions: Involuntary Conversions and Tax-Free Gains
In this module, we continue our discussion regarding non-taxable exchanges and discuss involuntary conversions. You will learn the earliest and latest dates to involuntarily exchange an asset after a casualty loss or condemnation. Next, we discuss paths for conversion, direct and indirect, and their tax consequences. We discuss two tests governing the non-recognition rules, specifically the functional use test and the taxpayer use test. Last, we discuss the rules governing the non-taxation of the sale of a taxpayer’s primary residence.
WEEK 7
Property Transactions: Character and Recapture
In this module, we discuss the character and applicable tax rates for gains and losses on the disposal of property. Gains and losses are categorized into ordinary, Section 1231, and long-term capital “preferential” rates. Next, the importance of the holding period and its determination of whether an asset is designated as short-term versus long-term is discussed. The netting of gains and losses from different characterizations is discussed. Last, we discuss what a Section 1231 asset is and how it gets treated in the netting process.
WEEK 8
Property Transactions: Depreciation Recapture
In this module, you will take a deeper dive into two categories within Section 1231 assets, Section 1245 assets and Section 1250 assets. You will learn about both depreciation recapture and depreciation unrecapture, and the varying special tax rates for gains that are recaptured or unrecaptured. Last, you will discover how other gains and losses fit into the netting process.
