Exam 14: Property Transactions Determination of Gain and Loss and Basic Considerations

What is the difference between the depreciation (or cost recovery)allowed and the depreciation (or cost recovery)allowable and what effect does each have on the adjusted basis of property?

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Question 1

Correct Answer:

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Normally,there is no difference between the depreciation (or cost recovery)allowed or allowable.The allowed depreciation (or cost recovery)is the amount actually taken,whereas the allowable depreciation (cost recovery)is the amount that could have been taken under the applicable depreciation (or cost recovery)method.The basis of the property is reduced by the cost recovery allowed,but this amount cannot be less than the allowable amount.

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

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Question 2

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Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

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Question 3

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One technique to avoid a wash sale result is to not purchase substantially identical stock or securities.Another is to avoid the 60-day wash sale window.

Nigel purchased a blending machine for $125,000 for use in his business.As to the machine,he has deducted MACRS cost recovery of $31,024,maintenance costs of $5,200,and repair costs of $4,000.Calculate Nigel's adjusted basis for the machine.

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Question 4

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

(True/False)

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Question 5

Robert and Diane,husband and wife,live in Pennsylvania,a common law state.They purchased land as joint tenants in 2012 for $300,000.In 2016,Diane dies and bequeaths her share of the land to Robert.The land has a fair market value of $450,000.What is Robert's adjusted basis for the land?

(Multiple Choice)

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Question 6

In 1973,Fran received a birthday gift of stock worth $75,000 from her aunt.The aunt had owned the stock (adjusted basis $50,000)for 10 years and paid gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

(True/False)

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Question 7

On February 1,Karin purchases real estate for $375,000.The annual property taxes of $5,000 are payable on December 31.Realizing that she will pay the property taxes for the entire year,Karin remits $374,575 to the seller at closing.Karin's adjusted basis for the real estate is:

(Multiple Choice)

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Question 8

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1,2013.In the current tax year (2016),she sells 25 shares of the 100 shares purchased on January 1,2013,for $2,500.Twenty-five days earlier,she had purchased 30 shares for $3,000.What is Karen's recognized gain or loss on the sale of the stock,and what is her basis in the 30 shares purchased 25 days earlier?

(Multiple Choice)

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Question 9

For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock,the taxpayer is required to allocate a portion of the stock basis to the stock rights.

(True/False)

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Question 10

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

(True/False)

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Question 11

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?

(Multiple Choice)

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Question 12

If a taxpayer purchases taxable bonds at a premium,the amortization of the premium is elective.However,if a taxpayer purchases tax-exempt bonds at a premium,the amortization of the premium is mandatory.Explain this difference in the treatment.

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Question 13

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.

(True/False)

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Question 14

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased assets?

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Question 15

If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

(True/False)

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Question 16

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

(True/False)

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Question 17

What effect does a deductible casualty loss have on the adjusted basis of property?

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Question 18

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

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Question 19

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

(True/False)

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Question 20

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What is the difference between the depreciation (or cost recovery)allowed and the depreciation (or cost recovery)allowable and what effect does each have on the adjusted basis of property?

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

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

Nigel purchased a blending machine for $125,000 for use in his business.As to the machine,he has deducted MACRS cost recovery of $31,024,maintenance costs of $5,200,and repair costs of $4,000.Calculate Nigel's adjusted basis for the machine.

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

Robert and Diane,husband and wife,live in Pennsylvania,a common law state.They purchased land as joint tenants in 2012 for $300,000.In 2016,Diane dies and bequeaths her share of the land to Robert.The land has a fair market value of $450,000.What is Robert's adjusted basis for the land?

In 1973,Fran received a birthday gift of stock worth $75,000 from her aunt.The aunt had owned the stock (adjusted basis $50,000)for 10 years and paid gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

On February 1,Karin purchases real estate for $375,000.The annual property taxes of $5,000 are payable on December 31.Realizing that she will pay the property taxes for the entire year,Karin remits $374,575 to the seller at closing.Karin's adjusted basis for the real estate is:

For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock,the taxpayer is required to allocate a portion of the stock basis to the stock rights.

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

If a taxpayer purchases taxable bonds at a premium,the amortization of the premium is elective.However,if a taxpayer purchases tax-exempt bonds at a premium,the amortization of the premium is mandatory.Explain this difference in the treatment.

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.

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased assets?

If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

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

What effect does a deductible casualty loss have on the adjusted basis of property?

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

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

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

Gross Income Concepts and Inclusions

Gross Income Exclusions

Deductions and Losses in General

Deductions and Losses Certain Business Expenses and Losses

Depreciation Cost Recovery Amortization and Depletion

Deductions Employee and Self Employed Related Expenses

Deduction and Losses Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Property Transactions Section 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

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