Property Transactions Reg

# REG — Property Transactions Exam: CPA — REG (Taxation & Regulation) — Core section (all candidates required) Last Updated: June 2026 --- ## Basis of Property Original basis = Cost paid (FMV at purchase for arm's-length transactions). Adjusted basis = Original basis + capital improvements − depreciation allowed (or allowable). > Exam Tip: Use "allowed or allowable" depreciation — even if a taxpayer fails to claim depreciation, it reduces basis. ### Special Basis Rules | Acquisition | Basis | |---|---| | Gift | Donor's adjusted basis (carryover) for gains; Lesser of donor's basis or FMV at gift date for losses | | Inheritance | FMV at date of death (stepped-up or stepped-down basis) | | Like-kind exchange | Old basis + boot given − boot received +/− gain/loss recognized | | Conversion from personal to business use | Lesser of adjusted basis or FMV at conversion date | --- ## Capital Gains and Losses ### Holding Period | Period | Classification | |---|---| | ≤ 12 months | Short-term capital gain/loss | | > 12 months | Long-term capital gain/loss | Inherited property: Always long-term regardless of actual holding period. ### Capital Gain Tax Rates | Taxpayer's Ordinary Income Rate | Long-Term Capital Gain Rate | |---|---| | 10% or 12% | 0% | | 22%, 24%, 32%, or 35% | 15% | | 37% | 20% | Unrecaptured §1250 gain (depreciation on real property): Taxed at max 25%. Net Investment Income Tax (NIIT): 3.8% on lesser of…