Exam 7: Basis, Gain and Loss, and Nontaxable Exchanges

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).

Ross lives in a house he received as a gift from his father.His father had lived in the house for 12 years.The adjusted basis of the house to his father was $160,000 and the fair market value at the time of the gift was $140,000.Ross sells this residence after living in it for 18 months for $150,000 and purchases a new home for $125,000.He incurs selling expenses of $7,000.What is Ross' recognized gain or loss and basis for the new residence?

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

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).

Moss exchanges a warehouse for a building he will use as an office building.The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000.In addition, Moss receives cash of $150,000.What is the recognized gain or loss and the basis of the office building?

Bud exchanges a business use machine with an adjusted basis of $22,000 and a fair market value of $30,000 for another business use machine with a fair market value of $28,000 and $2,000 cash.What is Bud's recognized gain or loss?

Hubert purchases Fran's jewelry store for $950,000.The identifiable assets of the business are as follows: ​ Basis FMV Inventory \ 90,000 \ 97,000 Accounts receivable 55,000 50,000 Building 100,000 225,000 Land 280,000 300,000 Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete.How should Hubert allocate the $950,000 purchase price to the assets?

Elvis owns all of the stock of White Corporation.The accumulated earnings and profits of White Corporation at the beginning of the year are a deficit of $20,000.The current earnings and profits are $30,000.Elvis' basis for his stock is $250,000.He receives a distribution of $300,000 on the last day of the tax year.How much dividend income and/or capital gain should Elvis report?

Mona purchased a business from Judah for $1,000,000.Judah's records and an appraiser provided her with the following information regarding the assets purchased: Adjusted Basis FMV Land \ 195,000 \ 270,000 Building 310,000 450,000 Equipment 95,000 180,000 ? What is Mona's adjusted basis for the land, building, and equipment?

Discuss the application of holding period rules to property acquired by gift and inheritance.

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

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

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.

Patty's factory building, which has an adjusted basis of $475,000, is destroyed by fire on April 8, 2017.Insurance proceeds of $500,000 are received on June 1, 2017.She has a new factory building constructed for $490,000, which she occupies on October 1, 2017.Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000.What is her recognized gain or loss?

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1, 2014.In the current tax year (2017), she sells 25 shares of the 100 shares purchased on January 1, 2014, for $2,500.Twenty-five days earlier, she had purchased 30 shares for $3,000.What is Karen's recognized gain or loss on the sale of the stock, and what is her basis in the 30 shares purchased 25 days earlier?

Molly exchanges a small machine (adjusted basis of $85,000; fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000; fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange.What is Molly's recognized gain or loss?

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

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

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?