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

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Question 71

Multiple Choice

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Moss exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000. In addition, Moss receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?

A) $0 and $350,000.
B) $0 and $450,000.
C) ($150,000) and $300,000.
D) ($200,000) and $350,000.

E) All of the above
F) B) and C)

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Question 72

Multiple Choice

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Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie's recognized gain or loss?

A) $0
B) $12,000
C) ($13,000)
D) ($25,000)

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

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Question 73

Short Answer

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Eric and Katie, who are married, jointly own a house in which they have resided for the past 17 years. They sell the house for $375,000 with realtor's fees of $10,000. Their adjusted basis for the house is $80,000. Since they are in their retirement years, they plan on moving around the country and renting. What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? $\begin{array}{ll}\text { WithExclusion }&\text { ElecttoForgo }\\\text { a. } \$ 0 & \$ 0 \\\text { b. } \$ 35,000 & \$ 35,000 \\\text { c. } \$ 0 & \$ 285,000 \\\text { d. } \$ 35,000 & \$ 285,000 \\\text { e. } \$ 285,000 & \$ 225,000\end{array}$

Melvin receives stock as a gift from his uncle. No gift tax is paid. The adjusted basis of the stock is $30,000 and the fair market value is $38,000. Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash. What is his recognized gain and the basis for the bonds?

If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Dena owns 500 acres of farm land in southeastern Maryland. Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land. She exchanges the land for an office building owned by Chris in Newark, NJ. The building has a fair market value of $900,000. Chris assumes Dena's mortgage on the land. What is the amount of Dena's recognized gain or loss on the exchange?

Mona purchased a business from Judah for $1,000,000. Judah's records and an appraiser provided her with the following information regarding the assets purchased: $\begin{array}{lrr}&\text { Adjusted Basis } & \text { FMV }\\\text { Land } & \$ 195,000 & \$ 270,000 \\\text { Building } & 310,000 & 450,000 \\\text { Equipment } & 95,000 & 180,000\end{array}$ What is Mona's adjusted basis for the land, building, and equipment?

Discuss the treatment of realized gains from involuntary conversions.

Reggie owns all the stock of Amethyst, Inc. (adjusted basis of $100,000). If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000, Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

The basis of property acquired in a bargain purchase is its cost.

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 2, 2019. During 2019, she sells 25 shares of the 100 shares purchased on January 2, 2019, for $2,500. Twenty-five days earlier, she had purchased 30 shares for $3,000. What is Karen's recognized gain or loss on the sale of the stock, and what is her basis in the 30 shares purchased 25 days earlier?

To be eligible to elect postponement of gain treatment for an involuntary conversion, what are the tests for qualifying replacement property?

A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.

Milton owns a bond (face value of $25,000) for which he paid $28,000. Which of the following statements is correct?

Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.

Taylor inherited 100 acres of land on the death of his father in 2019. A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father's death. The father had originally acquired the land in 1973 for $112,000 and prior to his death, he had expended $20,000 on permanent improvements. Determine Taylor's holding period for the land.

Ben sells stock (adjusted basis of $25,000) to his son, Ray, for its fair market value of $15,000. Ray gives the stock to his daughter, Trish, who subsequently sells it for $26,000. Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

Which of the following statements is correct?

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?

Lucinda, a calendar year taxpayer, owned a rental property with an adjusted basis of $312,000 in a major coastal city. Her property was condemned by the city government on October 12, 2019. To build a convention center, Lucinda eventually received qualified replacement property from the city government on March 9, 2020. This new property has a fair market value of $410,000. a. What is Lucinda's recognized gain or loss on the condemnation? b. What is her adjusted basis for the new property? c. If, instead of receiving qualifying replacement property, Lucinda was paid $410,000, what is the latest date that she can acquire qualifying replacement property?