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

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

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

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

Ben sells stock adjusted basis of $25,000) to his son, Ray, for its fair market value of $15,000. Ray gives the stock to his daughter, Trish, who subsequently sells it for $26,000. Ben's recognized loss is $0 and Trish's recognized gain is $1,000 $26,000 - $15,000 - $10,000).

A loss from the sale of a personal use asset that would be disallowed cannot be recognized even if the taxpayer converts the asset to business use prior to its sale.

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

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

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.

For the loss disallowance provision under § 267, related parties include certain family members, a shareholder and his or her controlled corporation i.e., greater than 50% in value of the corporation's outstanding stock), and a partner and his or her controlled partnership i.e., greater than 50% of the capital interests or profits interest in the partnership).

Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house?

Jamie is terminally ill and does not expect to live much longer. Pondering the consequences of her estate, she decides how to allocate her property to her nephews. She makes a gift of depreciated property i.e., adjusted basis exceeds fair market value) to Will, a gift of appreciated property i.e., fair market value exceeds adjusted basis) to Jim, and leaves appreciated property to Sam in her will. Each of the properties has the same fair market value. From an income tax perspective, which nephew is her favorite?

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

If a husband inherits his deceased wife's share of jointly owned property in a common law state, both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000. If the property is going to be given to Stuart's nephew, Alex, it is preferable for the transfer to be by inheritance rather than by gift.

Karen owns City of Richmond bonds with a face value of $10,000. She purchased the bonds on January 1, 2018, for $11,000. The maturity date is December 31, 2027. The annual interest rate is 4%. What is the amount of taxable interest income that Karen should report for 2018, and the adjusted basis for the bonds at the end of 2018, assuming straight-line amortization is appropriate?

Alvin is employed by an automobile dealership as its manager. As such, he purchased an SUV for $32,000 fair market value is $48,000). No other employees are permitted a discount. What is Alvin's basis in the SUV?

Morgan owned a convertible that he had purchased two years ago for $46,000 and which he transfers to his sole proprietorship. How is the sole proprietorship's basis for the car calculated? What additional information does Morgan need?

Ralph gives his daughter, Angela, stock basis of $8,000; fair market value of $6,000). No gift tax results. If Angela subsequently sells the stock for $10,000, what is her recognized gain or loss?

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).

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.