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

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.

Jason owns Blue Corporation bonds (face value of $10,000), purchased on January 1, 2019, for $11,000.The bonds have an annual interest rate of 3% and a maturity date of December 31, 2028.If Jason elects to amortize the bond premium, what are his taxable interest income for 2019 and the adjusted basis for the bonds at the end of 2019 (assuming straight-line amortization is appropriate)?

If a taxpayer reinvests the net proceeds (amount received minus related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period, it is possible to defer the recognition of the realized gain.

Valarie purchases a rental house and land for $180,000 during a depressed real estate market.Appraisals place the value of the house at $140,000 and the land at $60,000 (a total of $200,000).What is Valarie's basis in the house?

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800, she has amortized $300 of the premium.Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

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.

To qualify for the § 121 exclusion, the property must have been used by the taxpayer for the five years preceding the date of sale and owned by the taxpayer as the principal residence for the last two of those years.

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?

A loss from the sale of a personal use asset that would be disallowed cannot be recognized even if the taxpayer converts the asset to business use prior to its sale.

In a nontaxable exchange, the replacement property is assigned a carryover basis if there is a realized gain but receives a new basis if there is a realized loss.

Mary sells her personal use automobile for $20,000.She purchased the car two years ago for $17,000.What is Mary's recognized gain or loss? It increased in value due to its excellent mileage plus a safe design.

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)?

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?

Kendra owns a home in Atlanta.Her company transfers her to Chicago on January 2, 2019, and she sells the Atlanta house in early February 2019.She purchases a residence in Chicago on February 3, 2019.On December 15, 2019, Kendra's company transfers her to Los Angeles.In January 2020, she sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period, § 121 treatment does not apply to the sale of the second home.

The adjusted basis of an asset is the original cost (or basis) plus capital recoveries less capital additions.

Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

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

The holding period for property acquired by gift is automatically long term.

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.