Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Samuel's hotel is condemned by the City Housing Authority on July 5, 2012, for which he is paid condemnation proceeds of $950,000.He first received official notification of the pending condemnation on May 2, 2012.Samuel's adjusted basis for the hotel is $600,000 and he uses a fiscal year for tax purposes with a September 30 tax year-end.

Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?

Faith inherits an undivided interest in a parcel of land from her father on February 15, 2012. Her father purchased the land on August 25, 1985 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.

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

Hubert purchases Fran's jewelry store for $950,000.The identifiable assets of the business are as follows: Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete.How should Hubert allocate the $950,000 purchase price to the assets?

Use the following data to determine the sales price of Etta's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion.

Define qualified small business stock under § 1045.

Hilary receives $10,000 for a 13-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.

Can related parties take advantage of the like-kind exchange provisions?

Alice is terminally ill and does not expect to live much longer.Pondering the consequences of her estate, she decides how to allocate her property to her nieces.She makes a gift of depreciated property (i.e., adjusted basis exceeds fair market value) to Marsha, a gift of appreciated property (i.e., fair market value exceeds adjusted basis) to Jan, and leaves appreciated property to Cindy in her will.Each of the properties has the same fair market value.From an income tax perspective, which niece is her favorite?

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

Patty's factory building, which has an adjusted basis of $325,000, is destroyed by fire on March 5, 2012.Insurance proceeds of $475,000 are received on May 1, 2012.She has a new factory building constructed for $450,000, which she occupies on October 1, 2012.Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

Peggy uses a delivery van in her business.The adjusted basis is $39,000, and the fair market value is $34,000.The delivery van is stolen and Peggy receives insurance proceeds of $34,000.Determine Peggy's realized and recognized gain or loss.

Lucinda, a calendar year taxpayer, owned a rental property with an adjusted basis of $312,000 in a major coastal city.Her property was condemned by the city government on October 12, 2012.In order to build a convention center, Lucinda eventually received qualified replacement property from the city government on March 9, 2013.This new property has a fair market value of $410,000.

Discuss the treatment of losses from involuntary conversions.

Mitchell owned an SUV that he had purchased two years ago for $48,000 and which he transfers to his sole proprietorship.How is the sole proprietorship's basis for the SUV calculated? What additional information does Mitchell need?

For the following exchanges, indicate which qualify as like-kind property.

Taylor owns common stock in Taupe, Inc., with an adjusted basis of $100,000.She receives a preferred stock dividend which is nontaxable.

Libby's principal residence is destroyed by a tornado. She is single and her realized gain is $360,000. Is it possible for Libby's recognized gain to be $0?

Elbert gives stock worth $28,000 (no gift tax resulted) to his friend, Jeff, on June 8, 2012.Elbert purchased the stock on September 1, 2005, and his adjusted basis is $22,000.Jeff dies on December 8, 2013, and bequeaths the stock to Elbert.At that date, the fair market value of the stock is $31,000.