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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

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Question 61

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Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock.His first purchase was in 1991 when he acquired 30 shares for $20 a share.In 1996, Alfred bought 150 shares at $10 a share.In 2011, Alfred acquired 200 shares at $50 a share.Alfred intends to sell 125 shares at $60 per share in the current year.If Alfred's objective is to minimize gain, what is his recognized gain?

A) $1,250.
B) $3,520.
C) $5,950.
D) $6,250.
E) None of the above.

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

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Question 62

True/False

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Milt's building which houses his retail sporting goods store is destroyed by a flood. Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood. Both Milt and Sandra receive insurance proceeds that result in a realized gain. Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

A) True
B) False

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Question 63

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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).

Capital recoveries include:

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.

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.

A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.

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?

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.

Gift property (disregarding any adjustment for gift tax paid by the donor) :

Wyatt sells his principal residence in December 2012 and qualifies for the § 121 exclusion.He sells another principal residence in October 2013.Under certain circumstances Wyatt can qualify for the § 121 exclusion on the sale of the second residence.

Jena owns land as an investor.She exchanges the land for a warehouse in which she will store the inventory of her business.The exchange doesqualify for like-kind exchange treatment.

The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000, and the fair market value is $750,000.What is Lisa's recognized gain or loss?

Which of the following statements is correct with respect to qualified replacement property in a § 1033 involuntary conversion?

Moss exchanges a warehouse for a building he will use as an office building.The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000.In addition, Moss receives cash of $150,000.What is the recognized gain or loss and the basis of the office building?

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.

Eric and Faye, who are married, jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years, they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? With exclusion Elect to forgo

Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

Sonny exchanges a productive use machine (adjusted basis of $20,000) for a new machine worth $18,000.In addition, he receives cash of $6,000.What is the recognized gain or loss and the basis of the new machine?

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?