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

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Question 31

True/False

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Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

A) True
B) False

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Question 32

Multiple Choice

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Which of the following statements is false?

A) A realized gain that is never recognized results in the temporary recovery of more than the taxpayer's cost or other basis for tax purposes.
B) A realized gain on which recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis for tax purposes.
C) A realized loss that is never recognized results in the permanent recovery of less than the taxpayer's cost or other basis for tax purposes.
D) A realized loss on which recognition is postponed results in the temporary recovery of less than the taxpayer's cost or other basis for tax purposes.

E) A) and D)
F) None of the above

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Question 33

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For the following exchanges, indicate which qualify as like-kind property. a. Inventory of a sporting goods store in Charleston for land in Savannah. b. Investment land in Virginia Beach for office building in Williamsburg. c. Used automobile used in a business for a new automobile to be used in the business. d. Investment land in Paris for investment land in San Francisco. e. Shares of Texaco stock for shares of Exxon Mobil stock.

In determining the basis of like-kind property received, postponed losses are:

Bud exchanges land with an adjusted basis of $22,000 and a fair market value of $30,000 for another parcel of land with a fair market value of $28,000 and $2,000 cash. What is Bud's recognized gain or loss?

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000. If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 cash to her niece.

Broker's commissions, legal fees, and points paid by the seller reduce the seller's amount realized.

Sidney, a calendar year taxpayer, owns a building (adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business. The building is destroyed by fire on December 12, 2019, and two weeks later he receives insurance proceeds of $600,000. Due to family ties, Sidney decides to move to Columbia, SC. He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2020. By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

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.

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid). The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

Janice bought her house in 2010 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, 2019. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized?

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).

Paul sells property with an adjusted basis of $45,000 to his daughter Dean for $38,000. Dean subsequently sells the property to her brother, Preston, for $38,000. Three years later, Preston sells the property to Hun, an unrelated party, for $50,000. What is Preston's recognized gain or loss on the sale of the property to Hun?

Neal and his wife Faye reside in Texas, a community property state. Their community property consists of real estate (adjusted basis of $800,000; fair market value of $6 million) and personal property (adjusted basis of $390,000; fair market value of $295,000) . Neal dies first and leaves his estate to Faye. What is Faye's basis in the property after Neal's death?

Louis owns a condominium in New Orleans that has been his principal residence for 12 years. He wants to be near Lake Ponchartrain because he enjoys water activities. Therefore, he sells the condominium. His original intent was to purchase a house in New Orleans near the lake. However, the cost of such properties far exceeded his sales proceeds. He was able to purchase a house on the lake in Covington, which is located across the causeway. He invested all of his sales proceeds in the Covington house. After two months of commuting over an hour to and from work each day, he decides to rent an efficiency apartment in New Orleans near his office. He spends the weekends and vacations at his home in Covington. a. Does Louis qualify for exclusion of gain under § 121? b. Does his Covington house qualify as his principal residence?

Alvin is employed by an automobile dealership as its manager. As such, he purchased an SUV for $32,000 (fair market value is $48,000) . No other employees are permitted a discount. What is Alvin's basis in the SUV?

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

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.

Marge purchases the Kentwood Krackers, a AAA level baseball team, for $1.5 million. The appraised values of the identified assets are as follows. $\begin{array} { l r } \text { Prepaid season tickets } & \$ 150,000 \\\text { Stadium lease } & 400,000 \\\text { Player contracts } & 500,000 \\\text { Equipment } & 100,000\end{array}$ The Krackers have won the pennant for the past two years. Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

What effect does the assumption of liabilities have on a § 1031 like-kind exchange?