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

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he should use either a weighted average approach or a LIFO approach.

How is the donee's basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax.

On October 1, Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000). The property transfers were made subject to the mortgages. What amount of gain should Paula recognize?

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3, 2014. The adjusted basis is $800,000. The insurance company offers a settlement of $700,000. After protracted negotiations, Edith receives $825,000 on June 9, 2015. Edith is a fiscal year taxpayer whose tax year ends on June 30th. What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

Samuel's hotel is condemned by the City Housing Authority on July 5, 2014, for which he is paid condemnation proceeds of $950,000. He first received official notification of the pending condemnation on May 2, 2014. Samuel's adjusted basis for the hotel is $600,000 and he uses a fiscal year for tax purposes with a September 30 tax year- end. a. How much must Samuel reinvest in qualifying replacement property in order to postpone the recognition of realized gain? b. If Samuel reinvests the minimum amount required to avoid recognition of realized gain, what is his basis for the replacement property? c. What is qualifying replacement property? d. What is the earliest date that Samuel can acquire qualifying replacement property? e. What is the latest date that Samuel can acquire qualifying replacement property? f. How would the answer in e. change if Samuel's hotel had been destroyed in a flood?

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain, but cannot result in a recognized loss.

Ramon sells land with an adjusted basis of $120,000 and a fair market value of $175,000 to Pauline, his wife, for $175,000. Discuss how the tax consequences would differ if Ramon and Pauline had never been married.

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.

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV which she will use exclusively in her sole proprietorship business. This exchange qualifies for nontaxable exchange treatment.

Latisha owns a warehouse with an adjusted basis of $200,000. She exchanges it for a strip mall building worth $225,000. Which of the following statements is correct?

As part of the divorce agreement, Tyler transfers his ownership interest in their personal residence to Lupe. The house had been jointly owned by Tyler and Lupe and the adjusted basis is $520,000. At the time of the transfer to Lupe, the fair market value is $800,000. What is the recognized gain to Tyler, and what is Lupe's basis for the house?

Emma gives her personal use automobile (cost of $32,000; fair market value of $12,000) to her son, Louis, on July 3, 2014. She has owned the automobile since July 1, 2011. a. What is Louis' basis for the car? b. When does his holding period begin?

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

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?

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange, the taxpayer acquires substantially identical stock.

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:

Terry exchanges real estate (acquired on August 25, 2008) held for investment for other real estate to be held for investment on September 1, 2014. None of the realized gain of $10,000 is recognized, and Terry's adjusted basis for the new real estate is a carryover basis of $80,000. Consequently, Terry's holding period for the new real estate begins on August 25, 2008.

If there is an involuntary conversion (i.e., casualty, theft, or condemnation) of the taxpayer's principal residence, the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.

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. a. Does Louis qualify for exclusion of gain under § 121? b. Does his Covington house qualify as his principal residence?

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.