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Exam 14: Property Transactions Determination of Gain and Loss and Basic Considerations

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Question 61

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A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

A) True
B) False

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Question 62

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Taylor inherited 100 acres of land on the death of his father in 2016.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 1970 for $112,000 and prior to his death he had expended $20,000 on permanent improvements.Determine Taylor's holding period for the land.

A) Will begin with the date his father acquired the property.
B) Will automatically be long-term.
C) Will begin with the date of his father's death.
D) Will begin with the date the property is distributed to him.
E) None of the above.

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

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Question 63

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Milton purchases land and a factory building for his business for $300,000 with $100,000 being allocated to the land.During the first year,Milton deducts cost recovery of $4,922.Milton's adjusted basis for the building at the end of the first year is $195,078 ($200,000 - $4,922).

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1,2016,for $11,000.The maturity date is December 31,2025.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2016,and the adjusted basis for the bonds at the end of 2016,assuming straight-line amortization is appropriate?

Sandra's automobile,which is used exclusively in her trade or business,was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.

Parker bought a brand new Ferrari on January 1,2016,for $125,000.Parker was fatally injured in an auto accident on June 23,2016,when the fair market value of the car was $105,000.Parker was driving a loaner car from the Ferrari dealership while his car was being serviced.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on January 1,2016.

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).

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Define fair market value as it relates to property transactions.

Jamie is terminally ill and does not expect to live much longer.Pondering the consequences of her estate,she decides how to allocate her property to her nephews.She makes a gift of depreciated property (i.e. ,adjusted basis exceeds fair market value)to Will,a gift of appreciated property (i.e. ,fair market value exceeds adjusted basis)to Jim,and leaves appreciated property to Sam in her will.Each of the properties has the same fair market value.From an income tax perspective,which nephew is her favorite?

If losses are disallowed in a related party transaction,the holding period for the buyer includes the holding period of the seller.

Peggy uses a delivery van in her business.The adjusted basis is $39,000,and the fair market value is $34,000.The delivery van is stolen and Peggy receives insurance proceeds of $34,000.Determine Peggy's realized and recognized gain or loss.

In addition to other gifts,Megan made a gift of stock to Jeri in 1976.Megan had purchased the stock in 1974 for $7,500.At the time of the gift,the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1976,what is Jeri's gain basis for the stock?

Tara owns common stock in Taupe,Inc. ,with an adjusted basis of $250,000.She receives a preferred stock dividend which is nontaxable. a.What effect does the preferred stock dividend have on Tara's adjusted basis of the common stock? b.How is the basis of the preferred stock calculated? c.What effect does the preferred stock dividend have on Tara's gross income?

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

If the buyer assumes the seller's liability on the property acquired,the seller's amount realized is decreased by the amount of the liability assumed.

Faith inherits an undivided interest in a parcel of land from her father on February 15,2016.Her father purchased the land on August 25,1989 and his basis for the land was $325,000.The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later.The executor elects the alternate valuation date.Faith has nine brothers and sisters and each inherited a one-tenth interest. a.What is Faith's adjusted basis for her one-tenth undivided interest in the land? b.What is her holding period for the land?