Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Byron, who lived in New Hampshire, acquired a personal residence 10 years ago when he was 52 years old. During this period, he has occupied the residence for only eight months (out of 12) each year due to winter vacations in Florida. Is Byron eligible for exclusion of gain under § 121?

At a particular point in time, a taxpayer can have two principal residences for § 121 exclusion purposes.

Jared, a fiscal year taxpayer with a August 31 year-end, owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24, 2019. If the insurance settlement was $950,000 (received March 1, 2020), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

If a taxpayer exchanges like-kind property and assumes a liability associated with the property received, the taxpayer is considered to have received boot in the transaction.

In a deductible casualty or theft, the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

Albert purchased a tract of land for $140,000 in 2016 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2019 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2019?

Nontaxable stock dividends result in no change to the total basis of the old and new stock, but the basis per share decreases.

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? a. ($17,000); $125,000. b. ($17,000); $142,000. c. $3,000; $125,000. d. $3,000; $128,000. e. None of these.

If an election to postpone gain under § 1033 is made, the holding period of replacement property includes the holding period of the involuntarily converted property.

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

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?

Faith inherits an undivided interest in a parcel of land from her father on February 15, 2019. Her father purchased the land on August 25, 1992 and his basis for the land was $325,000. The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later. The executor elects the alternate valuation date. Faith has nine brothers and sisters and each inherited a one-tenth interest. a. What is Faith's adjusted basis for her one-tenth undivided interest in the land? b. What is her holding period for the land?

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

Discuss the treatment of losses from involuntary conversions.

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 seven-year covenant not to compete. How should Hubert allocate the $950,000 purchase price to the assets?

Define an involuntary conversion.

The holding period of property acquired by gift may begin on: