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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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Mary sells her personal use automobile for $20,000. She purchased the car two years ago for $17,000. What is Mary's recognized gain or loss? It increased in value due to its excellent mileage plus a safe design.

A) $0
B) $3,000
C) $17,000
D) $20,000

E) B) and C)
F) A) and D)

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Question 102

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A taxpayer who has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold should use either a weighted average approach or a LIFO approach.

A) True
B) False

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Question 103

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Chaney exchanges land used in her business for another parcel of land. The adjusted basis for her land is $32,000. The land she will receive has a fair market value of $33,000. In addition, Chaney receives cash of $4,000. a. Calculate Chaney's realized and recognized gain or loss. b. Calculate Chaney's basis for the assets she received.

If a husband inherits his deceased wife's share of jointly owned property in a common law state, both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

What kinds of property do not qualify under the like-kind provisions?

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 three years, they do not plan to be 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" e-mail. Calculate Karen's realized and recognized gain or loss.

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

The holding period for property acquired by gift is automatically long term.

Brian and Becca have been married and living together in Brian's home for 6 years. He lived in the home alone for 20 years prior to their marriage. They sell the home, which has an adjusted basis of $120,000, for $700,000. Brian and Becca plan to use the § 121 exclusion (exclusion of gain on sale of principal residence) . In Becca's prior marriage to Dan, Dan sold his principal residence and used the § 121 exclusion. Becca and Dan filed joint returns during their seven years of marriage. They had lived in Dan's house throughout their marriage. Dan's sale had occurred one year prior to the divorce. Brian and Becca purchase a replacement residence for $650,000 one month after the sale of their home. What is the recognized gain and basis for the new home?

Valarie purchases a rental house and land for $180,000 during a depressed real estate market. Appraisals place the value of the house at $140,000 and the land at $60,000 (a total of $200,000) . What is Valarie's basis in the house?

Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000) from personal use to business use. Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis) from his mother as a gift. Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.

Parker bought a brand new Ferrari on January 1, 2019, for $125,000. Parker was fatally injured in an auto accident on June 23, 2019, 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, 2019.

During 2019, Jack and Tonya, 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?

Molly exchanges land (adjusted basis of $85,000; fair market value of $78,000) used in her business and common stock held for investment (adjusted basis of $10,000; fair market value of $15,000) for a single parcel of land (fair market value of $93,000) to be used in her business in a like-kind exchange. What is Molly's recognized gain or loss?

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

In a nontaxable exchange, the replacement property is assigned a carryover basis if there is a realized gain but receives a new basis if there is a realized loss.

The adjusted basis of an asset is the original cost (or basis) plus capital recoveries less capital additions.

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits, the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

Deidra has owned and occupied her principal residence for 10 years. Two and one-half years ago, she married Doug who moved into her house. Doug has never owned a home. When Deidra is transferred to another city, she sells the house and has a realized gain of $425,000. Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.