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

Melvin receives stock as a gift from his uncle. No gift tax is paid. The adjusted basis of the stock is $30,000 and the fair market value is $38,000. Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash. What is his recognized gain and the basis for the bonds?

Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house?

When boot in the form of cash is given in a like-kind exchange, recognized gain is the greater of the boot or the realized gain.

In 2010, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2014. At this time, the fair market value of the car has declined to $10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with out­of­pocket costs of $5,000. She later sells the car for $30,000. What is Julia's recognized gain or loss on the sale of the car?

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Kitty, 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.

Gil's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane. Due to a 30% co-insurance clause, Gil receives insurance proceeds of $192,500 two months after the date of the loss. One month later, Gil uses the insurance proceeds to purchase a new office building for $275,000. His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Joyce, a farmer, has the following events occur during the tax year. Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion)?

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

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

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2014, he sells 400 shares for $5,200, while on May 5, 2014, he purchases 200 shares for $3,600. a. What is Mitch's recognized gain or loss resulting from these transactions? b. What is Mitch's basis for the stock acquired on May 5, 2014? c. Could Mitch have obtained different tax consequences in a. and b. if he had sold the 400 shares on December 27, 2014, and purchased the 200 shares on January 5, 2015?

Mike's basis in his stock in Tan Corporation is $75,000. He receives nontaxable stock rights (fair market value of $20,000) when the value of the stock is $100,000. What is the basis for the stock rights?

Dennis, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) which is destroyed by a tornado in October 2014. He receives insurance proceeds of $250,000 in January 2015. If before 2018, Dennis replaces the warehouse with another warehouse costing at least $250,000, he can elect to postpone the recognition of any realized gain.

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

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.

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.

The holding period of property acquired by gift may begin on:

Karen owns City of Richmond bonds with a face value of $10,000. She purchased the bonds on January 1, 2014, for $11,000. The maturity date is December 31, 2023. The annual interest rate is 8%. What is the amount of taxable interest income that Karen should report for 2014, and the adjusted basis for the bonds at the end of 2014, assuming straight-line amortization is appropriate?

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.

Chaney exchanges a truck used in her business for making deliveries for a smaller more fuel-efficient truck to be used in her business for making deliveries. The adjusted basis for her truck is $32,000. The smaller truck 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. a.?Amount realized ($33,000 + $4,000)?$37,000???Adjusted basis?(32,000)???Realized gain?$ 5,000??? Recognized gain? $ 4,000?? Calculate Chaney's basis for the assets she received. a. Amount realized (\ 33,000+\ 4,000) \ 37,000 Adjusted basis Realized gain \ 5,000 Recognized gain \ 4,000 a. Amount realized (\ 33,000+\ 4,000) \ 37,000 Adjusted basis Realized gain \ 5,000 Recognized gain \ 4,000