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

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Question 91

True/False

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If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency,the basis of the replacement property will be more than its cost (cost plus realized gain).

A) True
B) False

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Question 92

Multiple Choice

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Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later,he receives a 5% common stock dividend.At that time,the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple Corporation stock,the per share basis,and gain recognized upon receipt of the common stock dividend?

A) $50,000 basis in stock,$10 basis per share for the original stock and $0 basis per share for the dividend shares,$0 recognized gain.
B) $50,000 basis in stock,$9.52 basis per share,$0 recognized gain.
C) $53,125 basis in stock,$10 basis per share for the original stock and $12.50 basis per share for the dividend shares,$3,125 recognized gain.
D) $53,125 basis in stock,$10.12 basis per share,$3,125 recognized gain.
E) None of the above.

F) B) and E)
G) A) and E)

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Question 93

Multiple Choice

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The basis of personal use property converted to business use is:

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?

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,New Jersey.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?

Section 1033 (nonrecognition of gain from an involuntary conversion)applies to both gains and losses.

Parker bought a brand new Ferrari on January 1,2015,for $125,000.Parker was fatally injured in an auto accident on June 23,2015,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 1,2015.

In 2011,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 2015.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?

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?

Paula inherits a home on July 1,2015 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $125,000 and move into the inherited home.On September 16,2015,she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1,2015.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

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?

Terry exchanges real estate (acquired on August 25,2009)held for investment for other real estate to be held for investment on September 1,2015.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 25,2009.

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1,2012.In the current tax year (2015) ,she sells 25 shares of the 100 shares purchased on January 1,2012,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?

Jamie bought her house in 2008 for $395,000.Since then,she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing.She sells the house on July 1,2015.Her realtor charged $34,700 in commissions.Prior to listing the house with the realtor,she spent $300 advertising in the local newspaper.Sammy buys the house for $500,000 in cash,assumes her mortgage of $194,000,and pays property taxes of $4,200 for the entire year on December 1,2015.What is Jamie's adjusted basis at the date of the sale and the amount realized?