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

Nontaxable stock dividends result in:

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

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?

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

On January 2, 2019, Todd converts his house into a rental property.Todd's basis in the house is $400,000, and its fair market value on the date of conversion is $376,000.What is Todd's basis for purposes of MACRS cost recovery?

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain but cannot result in a recognized loss.

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.

The wash sales rules apply to both gains and losses.

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?

Under the Internal Revenue Code, the holding period for property acquired by inheritance is always:

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?

Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

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?

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

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.