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

Gene purchased for $45,000 an SUV that he uses 100% for personal purposes.When the SUV is worth $30,000, he contributes it to his business.The gain basis is $45,000, the loss basis is $30,000, and the basis for cost recovery is $45,000.

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?

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.

Jan purchases taxable bonds with a face value of $250,000 for $265,000.The annual interest paid on the bonds is $10,000.Assume Jan elects to amortize the bond premium.The total premium amortization for the first year is $1,600. a.Jan receives interest payments of $10,000 each year.This amount is included in a.What is Jan's interest income for the first year? b.What is Jan's interest deduction for the first year? c.What is Jan's adjusted basis for the bonds at the end of the first year?

For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock, the taxpayer is required to allocate a portion of the stock basis to the stock rights.

Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's recognized gain or loss?

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) that he sells to his son, Ned, for its fair market value of $105,000.What is Arthur's recognized gain or loss and Ned's basis in the land?

Taylor inherited 100 acres of land on the death of his father in 2019.A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father's death.The father had originally acquired the land in 1973 for $112,000 and prior to his death, he had expended $20,000 on permanent improvements.Determine Taylor's holding period for the land.

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000).Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit.She received only $360,000 because of a co-insurance clause in her insurance policy.What is Joyce's recognized gain or loss?

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?

Robert and Diane, husband and wife, live in Pennsylvania, a common law state.They purchased land as joint tenants in 2015 for $300,000.In 2019, Diane dies and bequeaths her share of the land to Robert.The land has a fair market value of $450,000.What is Robert's adjusted basis for the land?

A taxpayer who has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold should use either a weighted average approach or a LIFO approach.

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.

The amount of a corporate distribution qualifying for capital recovery treatment that exceeds the shareholder- recipient's basis in the stock investment is treated as a capital gain.

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1, 2019, for $11,000.The maturity date is December 31, 2028.The annual interest rate is 4%.What is the amount of taxable interest income that Karen should report for 2019, and the adjusted basis for the bonds at the end of 2019, assuming straight-line amortization is appropriate?

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

Monroe's delivery truck is damaged in an accident.His 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.

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

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?

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.