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Exam 7: Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges

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Question 21

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Terry exchanges real estate acquired on August 25, 2012) held for investment for other real estate to be held for investment on September 1, 2018.None of the realized gain of $10,000 is recognized, and Terry's adjusted basis for the new real estate is a carryover basis of $80,000.Consequently, Terry's holding period for the new real estate begins on August 25, 2012.

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B) False

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Question 22

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In general, the amount realized from a sale of property does not include any liability assumed by the buyer.

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B) False

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Question 23

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In a nontaxable exchange, the replacement property is assigned a carryover basis if there is a realized gain, but receives a new basis if there is a realized loss.

Nancy gives her niece a crane to use in her business with a fair market value of $61,000 and a basis in Nancy's hands of $80,000.No gift tax was paid.What is the niece's basis for depreciation cost recovery) ?

Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $35,000 on the date of gift.No gift tax was paid by the donor.Shontelle subsequently sold the property for $31,000.What is the recognized gain or loss?

In 2014, Harold purchased a classic car that he planned to restore for $12,000.However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2018.At this time, the fair market value of the car has declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out-of-pocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?

Pat owns a 1965 Ford Mustang which he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Jason owns Blue Corporation bonds face value of $10,000) , purchased on January 1, 2018, for $11,000.The bonds have an annual interest rate of 3% and a maturity date of December 31, 2027.If Jason elects to amortize the bond premium, what is his taxable interest income for 2018 and the adjusted basis for the bonds at the end of 2018 assuming straight-line amortization is appropriate) ?

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock.His first purchase was in 1995 when he acquired 30 shares for $20 a share.In 2002, Alfred bought 150 shares at $10 a share.In 2017, Alfred acquired 200 shares at $50 a share.Alfred intends to sell 125 shares at $60 per share in the current year 2018) .If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he should use either a weighted average approach or a LIFO approach.

If boot is received in a § 1031 like-kind exchange, the recognized gain cannot exceed the realized gain.

Tobin inherited 100 acres of land on the death of his father in 2018.A Federal estate tax return was filed and the land was valued at $300,000 its fair market value at the date of the death) .The father had originally acquired the land in 1975 for $19,000 and prior to his death had made permanent improvements of $6,000.What is Tobin's basis in the land?

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000.If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 of cash to her niece.The same preference would exist if the recipient were a qualified charitable organization.

Mary sells her personal use automobile for $20,000.She purchased the car two years ago for $17,000.What is Mary's recognized gain or loss? It increased in value due to its excellent mileage, yet safe design.

Since wash sales do not apply to gains, it may be desirable to engage in this type of transaction before the end of the tax year.