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

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.

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

For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e.,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e.,greater than 50% of the capital interests or profits interest in the partnership).

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?

The amount received for a utility easement on land is included in the gross income of the taxpayer.

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery)expense of $1,130,she sells the house for $120,000.What is her recognized gain or loss?

Broker's commissions,legal fees,and points paid by the seller reduce the seller's amount realized.

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

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?

Reggie owns all the stock of Amethyst,Inc.(adjusted basis of $80,000).If he receives a distribution from Amethyst of $70,000 and corporate earnings and profits are $18,000,Reggie has a capital gain of $8,000 and an adjusted basis for his Amethyst stock of $0.

Elvis owns all of the stock of Shadow Corporation.The accumulated earnings and profits of Shadow Corporation at the end of the year are a deficit of $12,000.The current earnings and profits are $25,000.Elvis' basis for his stock is $290,000.He receives a distribution of $340,000 on the last day of the tax year.How much dividend income and/or capital gain should Elvis report?

Purchased goodwill is assigned a basis equal to cost,and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.

Define fair market value as it relates to property transactions.

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.

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.

Gift property (disregarding any adjustment for gift tax paid by the donor):

Rob was given a residence in 2012.At the time of the gift,the residence had a fair market value of $200,000,and its adjusted basis to the donor was $140,000.The donor paid a gift tax of $10,000 on the taxable gift of $187,000.What is Rob's basis for gain?

Annette purchased stock on March 1,2012,for $165,000.At December 31,2012,it was worth $171,000.She also purchased a bond on September 1,2012,for $20,000.At year end,it was worth $16,000.Determine Annette's realized and recognized gain or loss.

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.

Ed and Cheryl have been married for 27 years.They own land jointly with a basis of $300,000.Ed dies in 2012,when the fair market value of the land is $500,000.Under the joint ownership arrangement,the land passed to Cheryl.