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Exam 13: Property Transactions

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Question 1

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What is the difference between the depreciation (or cost recovery)allowed and the depreciation (or cost recovery)allowable and what effect does each have on the adjusted basis of property?

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Normally,there is no difference between ...

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Question 2

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Why is it generally undesirable to pass property by death when its fair market value is less than basis?

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Assuming the property is not personal use property (where neither the decedent nor the beneficiary is able to deduct any of the loss),the decedent should sell the property prior to his or her death.

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To be eligible to elect postponement of gain treatment for an involuntary conversion,what are the three tests for qualifying replacement property?

Inez's adjusted basis for 7,000 shares of Cardinal,Inc.common stock is $700,000.During the year,she receives a 6% stock dividend that is a nontaxable stock dividend.

Ollie owns a personal use car for which he originally paid $42,000.He trades the car in on a sports utility vehicle (SUV)paying the automobile dealer cash of $24,000.If the negotiated price of the SUV is $45,000,what is Ollie's recognized gain or loss and his adjusted basis for the SUV?

Rose's manufacturing plant is destroyed by fire on the afternoon of November 1,2011.The adjusted basis is $800,000.The insurance company offers a settlement of $760,000.After protracted negotiations,Rose receives $810,000 on July 25,2012.Rose is a fiscal year taxpayer whose tax year ends on June 30th.What is the latest date that Rose can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

Sandy and Greta form Tan,Inc.by transferring the following assets to the corporation in exchange for 1,000 shares of stock each. Sandy: Cash of $200,000 Greta: Land (worth $200,000; adjusted basis of $75,000). How much gain must Tan recognize on the receipt of these assets?

Laura transfers her personal use automobile to her business (a sole proprietorship).The car's adjusted basis is $32,000 and the fair market value is $20,000.No cost recovery had been deducted by Laura,since she held the car for personal use.Determine the adjusted basis of the car to Laura's sole proprietorship including the basis for cost recovery.

Boyd acquired tax-exempt bonds for $430,000 in December 2011.The bonds,which mature in December 2016,have a maturity value of $400,000.Boyd does not make any elections regarding the amortization of the bond premium.Determine the tax consequences to Boyd when he redeems the bonds in December 2016.

On January 15 of the current taxable year,Merle sold stock with a cost of $40,000 to his brother Ned for $25,000,its fair market value.On June 21,Ned sold the stock to a friend for $26,000.

Renee purchases taxable bonds with a face value of $200,000 for $212,000.The annual interest paid on the bonds is $10,000.Assume Renee elects to amortize the bond premium.The total premium amortization for the first year is $1,600.

Albert is considering two options for selling land for which he has an adjusted basis of $70,000 and on which there is a mortgage of $100,000.Under the first option,Albert will sell the land for $150,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete.Under the second option,Albert will sell the land for $50,000 and the buyer will assume the mortgage.Calculate Albert's recognized gain under both options.

Describe the relationship between the recovery of capital doctrine and the realized and recognized gain and loss concepts.

Louis owns a condominium in New Orleans which has been his principal residence for 12 years.He wants to be near Lake Ponchartrain since 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.

Nigel purchased a blending machine for $125,000 for use in his business.As to the machine,he has deducted MACRS cost recovery of $31,024,maintenance costs of $5,200,and repair costs of $4,000.Calculate Nigel's adjusted basis for the machine.

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

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.

Janet,age 68,sells her principal residence for $500,000.She purchased it twenty-two years ago for $150,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Janet's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.

Can related parties take advantage of the like-kind exchange provisions?

Hubert purchases Fran's jewelry store for $950,000.The identifiable assets of the business are as follows: Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete.How should Hubert allocate the $950,000 purchase price to the assets?