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

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Question 81

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An office building with an adjusted basis of $320,000 was destroyed by fire on December 30,2017.On January 11,2018,the insurance company paid the owner $450,000.The fair market value of the building was $500,000,but under the co-insurance clause,the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12,2018,that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

A) $0 and $320,000.
B) $0 and $410,000.
C) $40,000 and $320,000.
D) $130,000 and 410,000.
E) None of the above.

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

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Question 82

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In a casualty or theft,the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

A) True
B) False

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Question 83

Multiple Choice

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Dena owns 500 acres of farm land in southeastern Maryland.Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark,New Jersey.The building has a fair market value of $900,000.Chris assumes Dena's mortgage on the land.What is the amount of Dena's recognized gain or loss on the exchange?

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

Carl sells his principal residence,which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence) ?

Kelly,who is single,sells her principal residence,which she has owned and occupied for 8 years,for $375,000.The adjusted basis is $64,000 and selling expenses are $22,000.She purchases another principal residence three months later for $200,000.Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

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?

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

A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

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.

Wade is a salesman for a real estate development company.Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000.The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000.Wade must recognize a gain of $10,000 ($100,000 developer's adjusted basis - $90,000 cost to Wade),and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

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

Nontaxable stock dividends result in:

Melody's adjusted basis for 10,000 shares of Cardinal,Inc.common stock is $1,000,000.During the year,she receives a 5% stock dividend that is a nontaxable stock dividend. a.What is the amount of Melody's gross income? b.What is Melody's total basis for the stock? c.What is Melody's basis per share?

Evelyn,a calendar year taxpayer,lists her principal residence with a realtor on February 7,2017,enters into a contract to sell on July 12,2017,and sells (i.e.,the closing date) the residence on August 1,2017.The realized gain on the sale is $225,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the Evelyn as the principal residence for at least two years during the prior five-year period?

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Jared,a fiscal year taxpayer with a August 31st year-end,owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24,2017.If the insurance settlement was $950,000 (received March 1,2018) ,what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

Mona purchased a business from Judah for $1,000,000.Judah's records and an appraiser provided her with the following information regarding the assets purchased: ​ What is Mona's adjusted basis for the land,building,and equipment?