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

In a nontaxable exchange, recognition is postponed.In a tax-free transaction, nonrecognition is permanent.

Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0, and her adjusted basis for the Blue Heron stock is $300,000.

When boot in the form of cash is given in a like-kind exchange, recognized gain is the greater of the boot or the realized gain.

The basis of personal use property converted to business use is:

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000.What is her recognized 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.

Yolanda buys a house in the mountains for $450,000 that she uses as her personal vacation home.She builds an additional room on the house for $40,000.She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

The exchange of unimproved real property located in Topeka, KS, for improved real property located in Atlanta, GA, does not qualify as a like-kind exchange.

Terry owns Lakeside, Inc.stock (adjusted basis of $80,000), which she sells to her brother, Jake, for $64,000 (its fair market value).Eighteen months later, Jake sells the stock to Pamela, a friend, for $78,000 (its fair market value).What is Terry's recognized loss, Jake's recognized gain or loss, and Pamela's adjusted basis for the stock?

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.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Tobin inherited 100 acres of land on the death of his father in 2019.A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death).The father had originally acquired the land in 1976 for $19,000 and prior to his death had made permanent improvements of $6,000.What is Tobin's basis in the land?

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.

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV that she will use exclusively in her business.This exchange qualifies for nontaxable exchange treatment.

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

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.

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $35,000 on the date of gift.No gift tax was paid by the donor.Shontelle subsequently sold the property for $31,000.What is the recognized gain or loss?

In general, the amount realized from a sale of property does not include any liability assumed by the buyer.