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

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

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

A strip along the boundary of Joy's land is condemned for a utility easement. She receives a payment of $7,500 from the utility company. Her basis in the land is $80,000. Which of the following is correct?

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)?

Morgan owned a convertible that he had purchased two years ago for $46,000 and which he transfers to his sole proprietorship. How is the sole proprietorship's basis for the car calculated? What additional information does Morgan need?

Nat is a salesman for a real estate developer. His employer permits him to purchase a lot for $75,000. The employer's adjusted basis for the lot is $45,000, and its normal selling price is $90,000. What is Nat's recognized gain and his basis for the lot?

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

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000. What is Arthur's recognized gain or loss and Ned's basis in the land?

Marge purchases the Kentwood Krackers, a AAA level baseball team, for $1.5 million. The appraised values of the identified assets are as follows: The Krackers have won the pennant for the past two years. Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

Taylor inherited 100 acres of land on the death of his father in 2017. A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father's death. The father had originally acquired the land in 1971 for $112,000 and prior to his death he had expended $20,000 on permanent improvements. Determine Taylor's holding period for the land.

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?

Boyd acquired tax-exempt bonds for $430,000 in December 2017. The bonds, which mature in December 2022, have a maturity value of $400,000. Boyd does not make any elections regarding the amortization of the bond premium. Determine the tax consequences to Boyd when he redeems the bonds in December 2022.

Jason owns Blue Corporation bonds (face value of $10,000), purchased on January 1, 2017, for $11,000. The bonds have an annual interest rate of 6% and a maturity date of December 31, 2026. If Jason elects to amortize the bond premium, what is his taxable interest income for 2017 and the adjusted basis for the bonds at the end of 2017 (assuming straight-line amortization is appropriate)?

Janice bought her house in 2008 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, 2017. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized?

What is the general formula for calculating the adjusted basis of property?

Yolanda buys a house in the mountains for $450,000 which 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?

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits, the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

Capital recoveries include:

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

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.