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

Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000) from personal use to business use. Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis) from his mother as a gift. Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.

A realized loss whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Capital recoveries include:

On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value. On June 21, Ned sold the stock to a friend for $26,000. a. What are the tax consequences to Merle and Ned? b. Would Ned recognize any gain if he sold the stock for $41,000?

Ed and Cheryl have been married for 27 years. They own land jointly with a basis of $300,000. Ed dies in 2014, when the fair market value of the land is $500,000. Under the joint ownership arrangement, the land passed to Cheryl. a. If Ed and Cheryl reside in a community property state, what is Cheryl's basis in the land? b. If Ed and Cheryl reside in a common law state, what is Cheryl's basis in the land?

What effect does a deductible casualty loss have on the adjusted basis of property?

Liz, age 55, sells her principal residence for $600,000. She purchased it twenty-two years ago for $175,000. Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000. Liz's objective is to minimize the taxes she must pay associated with the sale. Calculate her recognized gain.

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

What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?

Etta received nontaxable stock rights on October 3, 2014. She allocated $16,000 of the $50,000 basis for the associated stock to the stock rights. The stock rights are exercised on November 8, 2014. The exercise price for the stock is $52,000. What is Etta's basis for the acquired stock?

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium. On the later sale of the bond for $10,800, she has amortized $300 of the premium. Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

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).

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident. The adjusted basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra's adjusted basis for the automobile after the casualty?

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business. His adjusted basis for the airplane is $325,000 and the fair market value is $310,000. The fair market value of the smaller airplane is $300,000. In addition, Jake receives cash of $10,000. Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

Tobin inherited 100 acres of land on the death of his father in 2014. A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death). The father had originally acquired the land in 1971 for $19,000 and prior to his death had made permanent improvements of $6,000. What is Tobin's basis in the land?

Pat owns a 1965 Mustang car which he uses for personal use. He purchased it four years ago for $22,000, and it currently is worth $27,000. He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000. Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Weston sells his residence to Joanne on October 15, 2014. Indicate which of the following statements is correctly associated with § 121 (exclusion of gain on sale of principal residence).

Evelyn, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2014, enters into a contract to sell on July 12, 2014, and sells (i.e., the closing date) the residence on August 1, 2014. 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?

Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

Melissa, age 58, marries Arnold, age 50, on June 1, 2014. Melissa decides to sell her principal residence on August 1, 2014, which she has owned and occupied for the past 30 years. Arnold has never owned a house. However, while he was married to Kelly who died 6 months prior to his marriage to Melissa, Kelly used the § 121 election on the sale of her residence in January 2012 to reduce her realized gain from $123,000 to $0. Kelly used the sales proceeds to pay off Arnold's gambling debts. Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?