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

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%.

Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000.If the property is going to be given to Stuart's nephew,Alex,it is preferable for the transfer to be by inheritance rather than by gift.

Sam and Cheryl,husband and wife,own property jointly.The property has an adjusted basis of $400,000 and a fair market value of $500,000. a.Discuss the rules for the calculation of the adjusted basis of the property to Sam if he inherits his wife's share of the property and Sam and Cheryl live in a community property state. b.If they live in a common law state?

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.

Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.

Capital recoveries include:

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?

Milton purchases land and a factory building for his business for $300,000 with $100,000 being allocated to the land.During the first year,Milton deducts cost recovery of $4,922.Milton's adjusted basis for the building at the end of the first year is $195,078 ($200,000 - $4,922).

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.

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1,2011.In the current tax year (2014),she sells 25 shares of the 100 shares purchased on January 1,2011,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?

If property that has been converted from personal use to business use has appreciated in value,its basis for gain will be the same as the basis for loss.

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?

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

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1,2014,for $11,000.The maturity date is December 31,2023.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2014,and the adjusted basis for the bonds at the end of 2014,assuming straight-line amortization is appropriate?

Parker bought a brand new Ferrari on January 1,2014,for $125,000.Parker was fatally injured in an auto accident on June 23,2014,when the fair market value of the car was $105,000.Parker was driving a loaner car from the Ferrari dealership while his car was being serviced.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on January 1,2014.

Ed and Cheryl have been married for 27 years.They own land jointly with a basis of $300,000.Ed dies in 2014,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?

Jason owns Blue Corporation bonds (face value of $10,000),purchased on January 1,2014,for $11,000.The bonds have an annual interest rate of 8% and a maturity date of December 31,2023.If Jason elects to amortize the bond premium,what is his taxable interest income for 2014 and the adjusted basis for the bonds at the end of 2014 (assuming straight-line amortization is appropriate)?

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?

Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's recognized gain or loss?