Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Mike's basis in his stock in Tan Corporation is $75,000.He receives nontaxable stock rights (fair market value of $20,000) when the value of the stock is $100,000.What is the basis for the stock rights?

During 2012, Howard and Mabel, a married couple, decided to sell their residence.The residence has a basis of $162,000 and has been owned and occupied by them for 11 years. To make it more attractive to prospective buyers, they had it painted in April at a cost of $5,000.The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000. They purchased a new residence in June for $400,000. What is the adjusted basis of the new residence?

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.

To qualify for the § 121 exclusion, the property must have been owned by the taxpayer for the 5 years preceding the date of sale and used by the taxpayer as the principal residence for the last 2 of those years.

Emma gives 1,000 shares of Green, Inc.stock to her niece, Margaret.Emma's adjusted basis for the stock is $200,000 and the fair market value is $300,000.Seven months after the gift, Margaret is killed in an airplane accident.Emma inherits the stock which then is worth $350,000.What is the adjusted basis of the inherited stock to Emma?

If boot is received in a § 1031 like-kind exchange, the recognized gain cannot exceed the realized gain.

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

In a nontaxable exchange, recognition is postponed.In a tax-free transaction, nonrecognition is permanent.

Which of the following statements is correct?

The holding period of property acquired by gift may begin on:

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.

Terry exchanges real estate (acquired on August 25, 2006) held for investment for other real estate to be held for investment on September 1, 2012.None of the realized gain of $10,000 is recognized, and Terry's adjusted basis for the new real estate is a carryover basis of $80,000.Consequently, Terry's holding period for the new real estate begins on August 25, 2006.

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.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Pierce exchanges an asset (adjusted basis of $14,000; fair market value of $18,000) for another asset (fair market value of $15,000).In addition, he receives cash of $3,000.If the exchange qualifies as a like-kind exchange, his recognized gain is $3,000 and his adjusted basis for the property received is $17,000 ($14,000 + $3,000 recognized gain).

In 2008, Harold purchased a classic car that he planned to restore for $12,000.However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2012.At this time, the fair market value of the car has declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out-of-pocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?

Latisha owns a warehouse with an adjusted basis of $112,000.She exchanges it for a strip mall building worth $150,000.Which of the following statements is correct?

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000).Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium.Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages.Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market.What is her recognized gain or loss associated with the receipt of the severance damages?