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

Noelle owns an automobile which she uses for personal use. Her adjusted basis is $45,000 (i.e., the original cost). The car is worth $22,000. Which of the following statements is correct?

Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss?

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

In order to qualify for like­kind exchange treatment under § 1031, which of the following requirements must be satisfied?

Monroe's delivery truck is damaged in an accident. Monroe's adjusted basis for the delivery truck prior to the accident is $20,000. If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000, his adjusted basis for the delivery truck after the accident is $21,000.

Which of the following statements is correct?

Hilary receives $10,000 for a 15-foot wide utility easement along one of the boundaries to her property. The easement provides that no structure can be built on that portion of the property. Her adjusted basis for the property is $200,000 and the easement covers 15% of the total acreage. Determine the effect of the $10,000 payment on Hilary's gross income and her basis for the property.

In a nontaxable exchange, the replacement property is assigned a carryover basis if there is a realized gain, but receives a new basis if there is a realized loss.

Discuss the relationship between the postponement of realized gain under § 1031 (like­kind exchanges) and the adjusted basis and holding period for the replacement property.

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

If a taxpayer reinvests the net proceeds (amount received - related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period, it is possible to defer the recognition of the realized gain.

In a nontaxable exchange, recognition is postponed. In a tax-free transaction, nonrecognition is permanent.

Jason owns Blue Corporation bonds (face value of $10,000), purchased on January 1, 2014, for $11,000. The bonds have an annual interest rate of 8% and a maturity date of December 31, 2023. If Jason elects to amortize the bond premium, what is his taxable interest income for 2014 and the adjusted basis for the bonds at the end of 2014 (assuming straight-line amortization is appropriate)?

Kate exchanges land held as an investment for land and a building owned by Clark, to be used in her business. If Clark is Kate's father, her realized gain of $150,000 must be recognized because they are related parties.

If boot is received in a § 1031 like­kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

If the buyer assumes the seller's liability on the property acquired, the seller's amount realized is decreased by the amount of the liability assumed.

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

Define a bargain purchase of property and discuss the related tax consequences.

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

To qualify for the § 121 exclusion, the property must have been used by the taxpayer for the 5 years preceding the date of sale and owned by the taxpayer as the principal residence for the last 2 of those years.