Exam 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxabl

A realized gain on an indirect (conversion into money) involuntary conversion of business property can be postponed,but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

Steve purchased his home for $500,000.As a sole proprietor,he operates a certified public accounting practice in his home.For this business,he uses one room exclusively and regularly as a home office.In Year 1,$3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2,Steve sustained losses in his business;therefore,no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense,his depreciation expense would have been $3,175.What is the adjusted basis in the home?

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.

In a 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 2012 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 2015 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2015?

Melissa,age 58,marries Arnold,age 50,on June 1,2015.Melissa decides to sell her principal residence on August 1,2015,which she has owned and occupied for the past 30 years.Arnold has never owned a house.However,while he was married to Kelly who died 6 months prior to his marriage to Melissa,Kelly used the § 121 election on the sale of her residence in January 2013 to reduce her realized gain from $123,000 to $0.Kelly used the sales proceeds to pay off Arnold's gambling debts.Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?

Jacob owns land with an adjusted basis of $140,000 and a fair market value of $115,000.Determine the amount of realized and recognized gain or loss to the seller and the adjusted basis for the buyer for each of the following. a.Jacob sells the land for $115,000 to a corporation in which he owns 60% of the stock. b.Jacob sells the land for $115,000 to a partnership in which he has a capital and profits interest of 60%.

Mona purchased a business from Judah for $1,000,000.Judah's records and an appraiser provided her with the following information regarding the assets purchased: Adjusted Basis FMV Land $195,000 $270,000 Building 310,000 450,000 Equipment 95,000 180,000 ​ What is Mona's adjusted basis for the land,building,and equipment?

On January 5,2015,Waldo sells his principal residence with an adjusted basis of $270,000 for $690,000.He has owned and occupied the residence for 15 years.He pays $35,000 in commissions and $2,000 in legal fees in connection with the sale.One month before the sale,Waldo painted the exterior of the house at a cost of $5,000 and repaired various items at a cost of $3,000.On October 15,2015,Waldo purchases a new home for $600,000.On November 15,2016,he pays $25,000 for completion of a new room on the house,and on January 14,2017,he pays $15,000 for the construction of a pool.What is the Waldo's recognized gain on the sale of his old principal residence and what is the basis for the new residence?

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)?

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

In determining the basis of like-kind property received,postponed losses are:

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

Marilyn owns 100% of the stock of Lilac,Inc. ,with an adjusted basis of $45,000.She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000. a.What is Marilyn's dividend income? b.What is Marilyn's recognized gain or loss? c.What is Marilyn's adjusted basis for her stock after the distribution?

A factory building owned by Amber,Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

Ben sells stock (adjusted basis of $25,000) to his son,Ray,for its fair market value of $15,000.Ray gives the stock to his daughter,Trish,who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

To qualify for the § 121 exclusion,the property must have been used by the taxpayer for the 5 years preceding the date of sale and owned by the taxpayer as the principal residence for the last 2 of those years.

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Ken is considering two options for selling land for which he has an adjusted basis of $100,000 and on which there is a mortgage of $80,000.Under the first option,Ken will sell the land for $225,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete.Under the second option,Ken will sell the land for $145,000 and the buyer will assume the mortgage.Calculate Ken's recognized gain under both options.