Exam 14: Property Transactions: Determination of Gain or Loss and Basis Considerations

Emma gives her personal use automobile (cost of $32,000; fair market value of $12,000) to her son, Louis, on July 3, 2017. She has owned the automobile since July 1, 2014. a.What is Louis' basis for the car? b.When does his holding period begin?

How is the donee's basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax.

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.

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium. On the later sale of the bond for $10,800, she has amortized $300 of the premium. Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

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.

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1, 2014. In the current tax year (2017), she sells 25 shares of the 100 shares purchased on January 1, 2014, 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?

​Alvin is employed by an automobile dealership as its manager. As such, he purchased an SUV for $32,000 (fair market value is $48,000). No other employees are permitted a discount. What is Alvin's basis in the SUV?

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?

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the shareholder-recipient's basis in the stock investment is treated as a capital gain.

Wade is a salesman for a real estate development company. Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000. The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000. Wade must recognize a gain of $10,000 ($100,000 developer's adjusted basis - $90,000 cost to Wade), and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

Annette purchased stock on March 1, 2017, for $200,000. At December 31, 2017, it was worth $210,000. She also purchased a bond on September 1, 2017, for $20,000. At year end, it was worth $15,000. Determine Annette's realized and recognized gain or loss.

​Nontaxable stock dividends result in no change to the total basis of the old and new stock, but the basis per share decreases.

Tariq sold certain U.S. Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction. He felt that the U.S. Government and State of Oregon bonds were "good" investments, so he repurchased identical securities within one week. Do these transactions constitute wash sales? If the bond sales resulted in the recognition of gain (rather than loss), would the wash sale provisions prevent the gains from being recognized?

Elvis owns all of the stock of White Corporation. The accumulated earnings and profits of White Corporation at the beginning of the year are a deficit of $20,000. The current earnings and profits are $30,000. Elvis' basis for his stock is $250,000. He receives a distribution of $300,000 on the last day of the tax year. How much dividend income and/or capital gain should Elvis report?

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.

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident. The adjusted basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra's adjusted basis for the automobile after the casualty?

For the loss disallowance provision under § 267, related parties include certain family members, a shareholder and his or her controlled corporation (i.e., greater than 50% in value of the corporation's outstanding stock), and a partner and his or her controlled partnership (i.e., greater than 50% of the capital interests or profits interest in the partnership).

For disallowed losses on related-party transactions, who has the right of offset?

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.

Robert and Diane, husband and wife, live in Pennsylvania, a common law state. They purchased land as joint tenants in 2013 for $300,000. In 2017, 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?