Exam 14: Property Transactions: Determination of Gain or Loss and Basis Considerations

Broker's commissions, legal fees, and points paid by the seller reduce the seller's amount realized.

When a property transaction occurs, what four questions should be considered with respect to the sale or other disposition?

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).

Boyd acquired tax-exempt bonds for $430,000 in December 2018. The bonds, which mature in December 2023, have a maturity value of $400,000. Boyd does not make any elections regarding the amortization of the bond premium. Determine the tax consequences to Boyd when he redeems the bonds in December 2023.

Since wash sales do not apply to gains, it may be desirable to engage in this type of transaction before the end of the tax year.

Janice bought her house in 2009 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, 2018. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized?

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock. His first purchase was in 1995 when he acquired 30 shares for $20 a share. In 2002, Alfred bought 150 shares at $10 a share. In 2017, Alfred acquired 200 shares at $50 a share. Alfred intends to sell 125 shares at $60 per share in the current year 2018). If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

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

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.

In 2014, 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 2018. 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 out-of-pocket 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?

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.

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.

Nontaxable stock dividends result in:

Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

Pedro borrowed $250,000 to purchase a machine costing $300,000. He later borrowed an additional $25,000 using the machine as collateral. Both notes are nonrecourse. Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000. Pedro sells the machine subject to the two liabilities for $45,000. What is his realized gain or loss?

Tariq sold certain U.S. Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction. He felt that the U.S. Government and State of Oregon bonds were "good" investments, so he repurchased identical securities within one week. Do these transactions constitute wash sales? If the bond sales resulted in the recognition of gain rather than loss), would the wash sale provisions prevent the gains from being recognized?

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.

Which of the following is incorrect?

Milton purchases land and a factory building for his business for $300,000 with $100,000 being allocated to the land. During the first year, Milton deducts cost recovery of $4,922. Milton's adjusted basis for the building at the end of the first year is $195,078 $200,000 - $4,922).

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.