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

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes. When the SUV is worth $30,000, he contributes it to his business. The gain basis is $45,000, the loss basis is $30,000, and the basis for cost recovery is $45,000.

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?

Discuss the application of holding period rules to property acquired by gift and inheritance.

On September 18, 2017, Jerry received land and a building from Ted as a gift. Ted had purchased the land and building on March 5, 2014, and his adjusted basis and the fair market value at the date of the gift were as follows: Ted paid no gift tax on the transfer to Jerry. a.Determine Jerry's adjusted basis and holding period for the land and building. b.Assume instead that the FMV of the land was $89,000 and the FMV of the building was $60,000. Determine Jerry's adjusted basis and holding period for the land and building.

If a husband inherits his deceased wife's share of jointly owned property in a common law state, both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

Broker's commissions, legal fees, and points paid by the seller reduce the seller's amount realized.

If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.

Faith inherits an undivided interest in a parcel of land from her father on February 15, 2017. Her father purchased the land on August 25, 1990 and his basis for the land was $325,000. The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later. The executor elects the alternate valuation date. Faith has nine brothers and sisters and each inherited a one-tenth interest. a.What is Faith's adjusted basis for her one-tenth undivided interest in the land? b.What is her holding period for the land?

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000. If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 of cash to her niece. The same preference would exist if the recipient were a qualified charitable organization.

Ollie owns a personal use car for which he originally paid $48,000. He trades the car in on a sports utility vehicle (SUV) paying the automobile dealer cash of $30,000. If the negotiated price of the SUV is $49,000, what is Ollie's recognized gain or loss and his adjusted basis for the SUV?

Robert sold his ranch which was his principal residence during the current taxable year. At the date of the sale, the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000. The buyer paid him $500,000 in cash, agreed to take the title subject to the $200,000 mortgage, and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale. How much is Robert's realized gain on the sale?

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?

In computing the amount realized when the fair market value of the property received cannot be determined, the fair market value of the property surrendered may be used.

Define fair market value as it relates to property transactions.

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%.

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.

Hilary receives $10,000 for a 15-foot wide utility easement along one of the boundaries to her property. The easement provides that no structure can be built on that portion of the property. Her adjusted basis for the property is $200,000 and the easement covers 15% of the total acreage. Determine the effect of the $10,000 payment on Hilary's gross income and her basis for the property.

Ralph gives his daughter, Angela, stock (basis of $8,000; fair market value of $6,000). No gift tax results. If Angela subsequently sells the stock for $10,000, what is her recognized gain or loss?

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.

Ed and Cheryl have been married for 27 years. They own land jointly with a basis of $300,000. Ed dies in 2017, when the fair market value of the land is $500,000. Under the joint ownership arrangement, the land passed to Cheryl. a.If Ed and Cheryl reside in a community property state, what is Cheryl's basis in the land? b.If Ed and Cheryl reside in a common law state, what is Cheryl's basis in the land?