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

During 2017, Howard and Mabel, a married couple, decided to sell their residence.The residence has a basis of $162,000 and has been owned and occupied by them for 11 years.The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000.They purchased a new residence in June for $400,000.What is the adjusted basis of the new residence?

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

Sidney, a calendar year taxpayer, owns a building (adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business.The building is destroyed by fire on December 12, 2017, and two weeks later he receives insurance proceeds of $600,000.Due to family ties, Sidney decides to move to Columbia, SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2, 2018.By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

Kate exchanges land held as an investment for land and a building owned by Clark, to be used in her business.If Clark is Kate's father, her realized gain of $150,000 must be recognized because they are related parties.

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for 6 years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

Gift property (disregarding any adjustment for gift tax paid by the donor):

Robert sold his ranch which was his principal residence during the current taxable year.At the date of the sale, the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000.The buyer paid him $500,000 in cash, agreed to take the title subject to the $200,000 mortgage, and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale.How much is Robert's realized gain on the sale?

Which of the following is correct?

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?

In October 2017, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2006 while Jerry purchased his in 2009.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?

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1, 2017, for $11,000.The maturity date is December 31, 2026.The annual interest rate is 4%.What is the amount of taxable interest income that Karen should report for 2017, and the adjusted basis for the bonds at the end of 2017, assuming straight-line amortization is appropriate?

Under the taxpayer-use test for a § 1033 involuntary conversion, the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

When boot in the form of cash is given in a like-kind exchange, recognized gain is the greater of the boot or the realized gain.

Nancy and Tonya exchanged assets.Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000.The house has a mortgage of $200,000 which is assumed by Tonya.Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000.What is Tonya's realized and recognized gain?

Annette purchased stock on March 1, 2017, for $200,000.At December 31, 2017, it was worth $210,000.She also purchased a bond on September 1, 2017, for $20,000.At year end, it was worth $15,000.Determine Annette's realized and recognized gain or loss.

The exchange of unimproved real property located in Topeka (KS) for improved real property located in Atlanta (GA) does not qualify as a like-kind exchange.

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:

An involuntary conversion results from the destruction (complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

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?

Define a bargain purchase of property and discuss the related tax consequences.