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

The holding period for nontaxable stock dividends that are the same type (i.e., common on common) includes the holding period of the original shares, but the holding period for nontaxable stock dividends that are not the same type (i.e., preferred on common) is new and begins on the date the dividend is received.

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Beth sells investment land (adjusted basis of $225,000) that she has owned for 6 years to her husband, Richard, for its fair market value of $195,000. a. Calculate Beth's recognized gain or loss. b. Calculate Richard's basis for the land. c. How would your answers in a. and b. change if Beth and Richard were not married (i.e., merely good friends)? d. Would the answer in a. and b. change if the selling price was $270,000?

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

Maud exchanges a rental house at the beach with an adjusted basis of $225,000 and a fair market value of $200,000 for a rental house at the mountains with a fair market value of $180,000 and cash of $20,000. What is the recognized gain or loss?

Mary sells her personal use automobile for $20,000. She purchased the car two years ago for $17,000. What is Mary's recognized gain or loss? It increased in value due to its excellent mileage, yet safe design.

Carlton purchases land for $550,000. He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase. He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential. He subdivides the land and installs streets and sewers at a cost of $800,000. What is Carlton's basis for the land and the improvements?

Taxpayer owns a home in Atlanta. His company transfers him to Chicago on January 2, 2014, and he sells the Atlanta house in early February 2014. He purchases a residence in Chicago on February 3, 2014. On December 15, 2014, taxpayer's company transfers him to Los Angeles. In January 2015, he sells the Chicago residence and purchases a residence in Los Angeles. Because multiple sales have occurred within a two­year period, § 121 treatment does not apply to the sale of the second home.

Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock. Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000. Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000.

Reggie owns all the stock of Amethyst, Inc. (adjusted basis of $100,000). If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000, Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

A factory building owned by Amber, Inc. is destroyed by a hurricane. The adjusted basis of the building was $400,000 and the appraised value was $425,000. Amber receives insurance proceeds of $390,000. A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000. What is the recognized gain or loss and what is the basis of the new factory building?

Nontaxable stock dividends result in:

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the shareholder-recipient's basis in the stock investment is treated as a capital gain.

Marge purchases the Kentwood Krackers, a AAA level baseball team, for $1.5 million. The appraised values of the identified assets are as follows: Prepaid season tickets \1 50,000 Stadium lease 400,000 Player contracts 500,000 Equipment. 100,000 The Krackers have won the pennant for the past two years. Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

If Wal-Mart stock increases in value during the tax year by $6,000, the amount realized is a positive $6,000.

The amount received for a utility easement on land is included in the gross income of the taxpayer.

Sammy exchanges equipment used in his business in a like-kind exchange. The property exchanged is as follows: Property Surrendered Property Received Adj. Basis FMV Adj. Basis FMV Equipment \ 44,000 \ 60,000 \ 50,000 \ 43,000 Cash \ 5,000 \ 5,000 Liability on equipment \ 12,000 \ 12,000 $\text { The other party assumes the liability. }$ a. What is Sammy's recognized gain or loss? b. What is Sammy's basis for the assets he received?

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000). Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium. Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages. Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market. What is her recognized gain or loss associated with the receipt of the severance damages?

In October 2014, Ben and Jerry exchange investment realty in a § 1031 like­kind exchange. Ben bought his real estate in 2004 while Jerry purchased his in 2007. In addition to the realty, Ben receives Pearl, Inc. stock worth $10,000 from Jerry. Ben's realized gain is $30,000. On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?