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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

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Question 131

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Jason owns Blue Corporation bonds (face value of $10,000) , purchased on January 1, 2019, for $11,000. The bonds have an annual interest rate of 3% and a maturity date of December 31, 2028. If Jason elects to amortize the bond premium, what are his taxable interest income for 2019 and the adjusted basis for the bonds at the end of 2019 (assuming straight-line amortization is appropriate) ?

A) $300 and $11,000
B) $300 and $10,900
C) $200 and $11,000
D) $200 and $10,900

E) B) and C)
F) None of the above

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Question 132

True/False

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Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock. Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000. Leonore's recognized gain is $0, and her adjusted basis for the Blue Heron stock is $300,000.

A) True
B) False

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Question 133

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Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000. If the property is going to be given to Stuart's nephew, Alex, it is preferable for the transfer to be by inheritance rather than by gift.

Maurice sells his personal use automobile at a realized loss. Under what circumstances can Maurice deduct the loss? What if the personal use asset was sold at a realized gain?

Nat is a salesman for a real estate developer. His employer permits him to purchase a lot for $75,000. The employer's adjusted basis for the lot is $45,000, and its normal selling price is $90,000. What is Nat's recognized gain and his basis for the lot? $\begin{array}{lr}\text { Recognized Gain }&\text { Basis }\\\text { a. } \$ 0 & \$ 75,000 \\\text { b. } \$ 0 & \$ 90,000 \\\text { c. } \$ 15,000 & \$ 75,000 \\\text { d. } \$ 15,000 & \$ 90,000 \\\text { e. } \$ 30,000 & \$ 105,000\end{array}$

Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

Nigel purchased a blending machine for $125,000 for use in his business. As to the machine, he has deducted MACRS cost recovery of $31,024, maintenance costs of $5,200, and repair costs of $4,000. Calculate Nigel's adjusted basis for the machine.

Tariq sold certain U.S. Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction. He felt that the U.S. Government and State of Oregon bonds were "good" investments, so he repurchased identical securities within one week. Do these transactions constitute wash sales?

The wash sales rules apply to both gains and losses.

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.