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

If the buyer assumes the seller's liability on the property acquired, the seller's amount realized is decreased by the amount of the liability assumed.

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:

A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000.If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 cash to her niece.

Paul sells property with an adjusted basis of $45,000 to his daughter Dean for $38,000.Dean subsequently sells the property to her brother, Preston, for $38,000.Three years later, Preston sells the property to Hun, an unrelated party, for $50,000.What is Preston's recognized gain or loss on the sale of the property to Hun?

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

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.

Neal and his wife Faye reside in Texas, a community property state.Their community property consists of real estate (adjusted basis of $800,000; fair market value of $6 million) and personal property (adjusted basis of $390,000; fair market value of $295,000).Neal dies first and leaves his estate to Faye.What is Faye's basis in the property after Neal's death?

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

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Abby sells real property for $300,000.The buyer pays $5,000 in property taxes that had accrued during the year while the property was still legally owned by Abby.In addition, Abby pays $15,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Abby realize (the amount realized) from the sale of her property?

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

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

Nancy gives her niece a crane to use in her business with a fair market value of $61,000 and a basis in Nancy's hands of $80,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery)?

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 2, 2019.During 2019, she sells 25 shares of the 100 shares purchased on January 2, 2019, 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?

Alice owns land with an adjusted basis of $610,000 subject to a mortgage of $350,000.On April 1, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000.What is the amount realized?

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: 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?

If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

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).