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

Nontaxable stock dividends result in:

Wade is a salesman for a real estate development company.Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000.The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000.Wade must recognize a gain of $10,000 ($100,000 developer's adjusted basis - $90,000 cost to Wade),and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Which of the following is correct?

A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

Jamie 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 nephews.She makes a gift of depreciated property (i.e. ,adjusted basis exceeds fair market value)to Will,a gift of appreciated property (i.e. ,fair market value exceeds adjusted basis)to Jim,and leaves appreciated property to Sam in her will.Each of the properties has the same fair market value.From an income tax perspective,which nephew is her favorite?

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

For a corporate distribution of cash or other property to a shareholder,when does dividend income or a return of capital result?

Faith inherits an undivided interest in a parcel of land from her father on February 15,2014.Her father purchased the land on August 25,1987 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 one­tenth undivided interest in the land? b.What is her holding period for the land?

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

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.

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

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?

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800,she has amortized $300 of the premium.Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

Define fair market value as it relates to property transactions.

Reggie owns all the stock of Amethyst,Inc.(adjusted basis of $100,000).If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000,Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

In addition to other gifts,Megan made a gift of stock to Jeri in 1976.Megan had purchased the stock in 1974 for $7,500.At the time of the gift,the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1976,what is Jeri's gain basis for the stock?

Define a bargain purchase of property and discuss the related tax consequences.

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.