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

Since wash sales do not apply to gains,it may be desirable to engage in this type of transaction before the end of the tax year.

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(True/False)

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Question 1

Correct Answer:

Verified

True

If the fair market value of the property on the date of death is greater than on the alternate valuation date,the use of the alternate valuation amount is mandatory.

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(True/False)

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Question 2

Correct Answer:

Verified

False

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.

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(Essay)

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Question 3

Correct Answer:

Verified

The brother is a related party under the § 267 loss disallowance provision.Consequently,the realized loss on the sale of the investment property is disallowed.The brother's basis for the investment property is its cost.However,if the brother sells the investment property at a realized gain,he can offset this gain with as much of the prior disallowed loss as is needed to reduce it to zero.Otherwise,the disallowed loss is wasted.
Because a nephew is not treated as a related party under § 267,the realized loss on the sale of the investment property is recognized.The nephew's basis for the investment property is its cost.

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?

(Multiple Choice)

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Question 4

Noelle received dining room furniture as a gift from her friend,Jane.Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000.Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500.What is her recognized gain or loss?

(Multiple Choice)

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Question 5

The basis of property received by gift is always a carryover basis.

(True/False)

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Question 6

Renee purchases taxable bonds with a face value of $200,000 for $212,000.The annual interest paid on the bonds is $10,000.Assume Renee elects to amortize the bond premium.The total premium amortization for the first year is $1,600.

(Essay)

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Question 7

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later,he receives a 5% common stock dividend.At that time,the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple Corporation stock,the per share basis,and gain recognized upon receipt of the common stock dividend?

(Multiple Choice)

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Question 8

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?

(Multiple Choice)

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Question 9

Parker bought a brand new Ferrari on January 1,2012,for $125,000.Parker was fatally injured in an auto accident on June 23,2012,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 June 23,2012.

(True/False)

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Question 10

Melba gives her niece a drill press to use in her business with a fair market value of $36,000 and a basis in Melba's hands of $41,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery)?

(Multiple Choice)

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Question 11

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

(True/False)

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Question 12

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased assets?

(Essay)

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Question 13

The basis of personal use property converted to business use is:

(Multiple Choice)

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Question 14

Khalid sells two personal use assets during the taxable year.A gain of $6,000 is realized on the sale of one asset and a loss of $2,000 is realized on the sale of the other asset.What is the recognized gain or loss?

(Multiple Choice)

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Question 15

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.

(True/False)

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Question 16

Justin owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $9,800).On April 27,2012,he sells 300 shares for $2,800,while on May 5,2012,he purchases 200 shares for $2,500.

(Essay)

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Question 17

Which of the following statements is false?

(Multiple Choice)

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Question 18

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

(Essay)

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Question 19

Shontelle received a gift of income-producing property with an adjusted basis of $41,000 to the donor and fair market value of $38,000 on the date of gift.Gift tax of $6,000 was paid by the donor.Shontelle subsequently sold the property for $36,000.What is the recognized gain or loss?

(Multiple Choice)

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Question 20

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Since wash sales do not apply to gains,it may be desirable to engage in this type of transaction before the end of the tax year.

If the fair market value of the property on the date of death is greater than on the alternate valuation date,the use of the alternate valuation amount is mandatory.

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.

Noelle received dining room furniture as a gift from her friend,Jane.Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000.Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500.What is her recognized gain or loss?

The basis of property received by gift is always a carryover basis.

Renee purchases taxable bonds with a face value of $200,000 for $212,000.The annual interest paid on the bonds is $10,000.Assume Renee elects to amortize the bond premium.The total premium amortization for the first year is $1,600.

Melba gives her niece a drill press to use in her business with a fair market value of $36,000 and a basis in Melba's hands of $41,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery)?

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased assets?

The basis of personal use property converted to business use is:

Khalid sells two personal use assets during the taxable year.A gain of $6,000 is realized on the sale of one asset and a loss of $2,000 is realized on the sale of the other asset.What is the recognized gain or loss?

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.

Justin owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $9,800).On April 27,2012,he sells 300 shares for $2,800,while on May 5,2012,he purchases 200 shares for $2,500.

Which of the following statements is false?

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

Shontelle received a gift of income-producing property with an adjusted basis of $41,000 to the donor and fair market value of $38,000 on the date of gift.Gift tax of $6,000 was paid by the donor.Shontelle subsequently sold the property for $36,000.What is the recognized gain or loss?

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Tax Formula and Tax Determination; an Overview of Property Transactions

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions: Nontaxable Exchanges

Property Transactions: Capital Gains and Losses

Property Transactions: Section 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

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