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

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Question 101

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

A) True
B) False

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Question 102

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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.

A) True
B) False

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Question 103

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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 12,2017.In order to build a convention center,Lucinda eventually received qualified replacement property from the city government on March 9,2018.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?

Ross lives in a house he received as a gift from his father.His father had lived in the house for 12 years.The adjusted basis of the house to his father was $160,000 and the fair market value at the time of the gift was $140,000.Ross sells this residence after living in it for 18 months for $150,000 and purchases a new home for $125,000.He incurs selling expenses of $7,000.What is Ross' recognized gain or loss and basis for the new residence?

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

During 2017,Ted and Judy,a married couple,decided to sell their residence,which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.Since they both are age 68,they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

​Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000).On April 27,2017,he sells 400 shares for $5,200,while on May 5,2017,he purchases 200 shares for $3,600. a.​What is Mitch's recognized gain or loss resulting from these transactions? a. and b.​What is Mitch's basis for the stock acquired on May 5, 2017? b. if he had sold the 400 shares on December 27, 2017, and purchased the 200 shares on January 5, 2018? c.​Could Mitch have obtained different tax consequences in

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business.His adjusted basis for the airplane is $325,000 and the fair market value is $310,000.The fair market value of the smaller airplane is $300,000.In addition,Jake receives cash of $10,000.Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

​Nontaxable stock dividends result in no change to the total basis of the old and new stock,but the basis per share decreases.

Pat owns a 1965 Ford Mustang which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Marge purchases the Kentwood Krackers,a AAA level baseball team,for $1.5 million.The appraised values of the identified assets are as follows: The Krackers have won the pennant for the past two years.Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

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.

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

Monica sells a parcel of land to her son,Elbert,for $90,000.Monica's adjusted basis is $100,000.Three years later,Elbert gives the land to his fiancée,Karen.At that date,the land is worth $104,000.No gift tax is paid.Since Elbert is going to be stationed in the U.S.Army in Germany for 3 years,they do not plan on being married until his tour is completed.Six months after receiving the land,Karen sells it for $110,000.At the same time,Karen sends Elbert a "Dear John" email.Calculate Karen's realized and recognized gain or loss.

Eunice Jean exchanges land held for investment located in Rolla,Missouri,for land to be held for investment located near Madrid,Spain.Her basis for the land given up is $450,000 and the fair market value of the land received is $500,000.Eunice Jean also receives cash of $45,000. ​ a.What is Eunice Jean's recognized gain? b.What is her basis for the land received?

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.

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?

Pam exchanges a rental building,which has an adjusted basis of $520,000,for investment land which has a fair market value of $700,000.In addition,Pam receives $100,000 in cash.What is the recognized gain or loss and the basis of the investment land?

Which of the following statements is correct?