Exam 10: Property Transactions: Determination of Basis and Gains and Losses

Kent Knobe gave Larry Lawson a gift having a fair market value of $133,000 on February 14, 2012. Kent had purchased the gift property in 2004 for $93,000, the taxable gift was $120,000, and paid a gift tax of $15,000. What is Larry's basis in the property?

On January 6, 2012, Sally Strom purchased 300 shares of common stock in Corporation XYZ for $120 per share. Four months later she purchased 100 additional shares at $180 per share. On December 13, 2012, Sally received a 20 percent nontaxable stock dividend. What is Sally's basis in each share of stock after the stock dividend?

To determine the initial basis of purchased property, cost is used unless it is a bargain transaction in which case its fair market value is used.

When property that is subject to an existing debt is purchased, the basis of the property is the amount of cash paid initially plus the unpaid debt to which the property is subject.

When taxpayers sell property in an installment sale and realize gain, they generally recognize the gain:

fte basis of property acquired by inheritance is the lower of the decedent's adjusted basis or the fair market value on the date of the death of the decedent.

On January 1, 2010, Jane Judge paid $12,000 for taxable bonds with a face value of $10,000 that mature on January 1, 2020. She sells them on December 31, 2012, for $11,000. What are the tax consequences for Jane?

fte basis for nonbusiness property changed to business use is the greater of the adjusted basis of the property or its fair market value on the date it is converted to business use.

Which of the following statements is not true concerning installment reporting?

Brian Brewster sold property to a buyer who paid him $400,000 cash and assumed an existing mortgage of $150,000. fte property had cost $250,000 and he had made improvements of $50,000. Depreciation of $100,000 has been claimed and selling expenses were $20,000. What is the amount of gain?

All costs necessary to get depreciable property in place and ready for use are deductible in the year in which they are paid or incurred.

During 2012, Carl Crofts received a gift of property having a fair market value of $25,000 at the time of the gift. fte donor's adjusted basis in the property at the time of the gift was $21,000. fte donor paid a gift tax of $700 on the property. Carl's basis in the property is $21,700.

Brian Bradley purchased property for $50,000 in 2004. fte property was valued at $200,000 on May 14, 2012, when Brian died. His daughter Anita inherited the property. Six months later, on November 14, 2012, the property was valued at $170,000. (a.) What is Anita's basis in the property? (b.) If the executor of Brian's estate elected the alternate valuation date, what is Anita's basis? (c.) If the executor elected the alternate valuation date but distributed the property on August 18, 2012, what is Anita's basis? (d.) If the executor elected the alternate valuation date, but distributed the property on December 22, 2012, what is Anita's basis? (e.) If Anita sells the property on December 27, 2012, will she have short-term or long-term gain or loss?

In 2012, Bob Brown's aunt Barbara gave him a house. At the time of the gift, the house had a fair market value of $193,000, the taxable gift was $180,000, and his aunt's adjusted basis was $73,000. His aunt paid a gift tax of $30,000 on the house. What is Bob's basis in the house for purposes of determining gain?

In 2012, Leon Longrove sold a piece of business equipment that had an adjusted basis to him of $50,000 for $75,000 cash plus artwork that had a fair market value of $25,000. fte buyer assumed Leon's $20,000 loan on the equipment. Leon paid $5,000 in selling expenses. What is the amount of Leon's gain on the sale?

Increases in basis decrease the amount of gain realized or increase the amount of realized loss.

Leonard Lambert's commercial building, which had an adjusted basis of $500,000, was partially destroyed by fire. fte fair market value was $800,000 just before the fire and $600,000 immediately after. Leonard received $150,000 insurance proceeds and deducted a $50,000 casualty loss. What is Leonard's basis in the building before any repairs are made?

Joe Juggler sold some common stock to his brother Tim for $12,000, the current market price. He paid $15,000 for the stock two years ago. fte stock market recovered rapidly and three months later Tim sold the stock to a business acquaintance for $16,000. How much gain or loss should Joe and Tim report?

Norman Nelson owns 1,000 shares of Newton Corp. common stock which he purchased for $60,000 and later receives a nontaxable preferred stock dividend of 300 shares of Newton preferred stock when the FMV of the preferred was $100 per share and the FMV of the common was $90 per share. What is the basis of the common and preferred shares after the dividend?

Terry Trumbull purchased a tract of land. In order to have city water, he had to pay the water company $5,000 to extend the water line to his property. fte $5,000 cost is an addition to the basis of the land.