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

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Question 81

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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.

A) True
B) False

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Question 82

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To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

A) True
B) False

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Question 83

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Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2016, the date of the decedent's death. The executor distributes the land to Kelly on November 12, 2016, at which time the fair market value is $49,000. The fair market value on February 4, 2017, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2017, for $48,000. What is her recognized gain or loss?

Steve purchased his home for $500,000. As a sole proprietor, he operates a certified public accounting practice in his home. For this business, he uses one room exclusively and regularly as a home office. In Year 1, $3,042 of depreciation expense on the home office was deducted on his income tax return. In Year 2, Steve sustained losses in his business; therefore, no depreciation was taken on the home office. Had he been allowed to deduct depreciation expense, his depreciation expense would have been $3,175. What is the adjusted basis in the home?

How is the donee's basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax.

An involuntary conversion results from the destruction (complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000. What is Arthur's recognized gain or loss and Ned's basis in the land?

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the shareholder-recipient's basis in the stock investment is treated as a capital gain.

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?

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

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?

Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

In computing the amount realized when the fair market value of the property received cannot be determined, the fair market value of the property surrendered may be used.

Cole exchanges an asset (adjusted basis of $15,000; fair market value of $25,000) for another asset (fair market value of $19,000). In addition, he receives cash of $6,000. If the exchange qualifies as a like-kind exchange, his recognized gain is $6,000 and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

Discuss the application of holding period rules to property acquired by gift and inheritance.

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.

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) ?

During 2016, Howard and Mabel, a married couple, decided to sell their residence. The residence has a basis of $162,000 and has been owned and occupied by them for 11 years. The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000. They purchased a new residence in June for $400,000. What is the adjusted basis of the new residence?