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

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Jamie bought her house in 2007 for $395,000.Since then,she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing.She sells the house on July 1,2012.Her realtor charged $34,700 in commissions.Prior to listing the house with the realtor,she spent $300 advertising in the local newspaper.Sammy buys the house for $500,000 in cash,assumes her mortgage of $194,000,and pays property taxes of $4,200 for the entire year on December 1,2012.What is Jamie's adjusted basis at the date of the sale and the amount realized?

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?

Felix gives 100 shares of stock to his daughter,Monica.The stock was acquired in 2003 for $20,000,and at the time of the gift,it had a fair market value of $60,000.Felix paid a gift tax of $6,000.

Gene purchased an SUV for $42,000 which he uses 100% for personal purposes.When the SUV is worth $29,000,he contributes it to his business.The gain basis is $42,000,the loss basis is $29,000,and the basis for cost recovery is $29,000.

Discuss the application of holding period rules to property acquired by gift and inheritance.

Marge purchases the Kentwood Krackers,a AAA level baseball team,for $1.5 million.The appraised values of the identified assets are as follows: The Krackers have won the pennant for the past two years.Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

Noelle owns an automobile which she uses for personal use.Her adjusted basis is $45,000 (i.e.,the original cost).The car is worth $22,000.Which of the following statements is correct?

Lois received nontaxable stock rights with a fair market value of $4,000.The fair market value of the stock on which the rights were received is $24,000 (cost $14,000).Assume the rights are exercised by paying $31,000 plus the rights.Discuss how to calculate the basis of the old stock and the basis of the new stock.

Milton owns a bond (face value of $25,000)for which he paid $28,000.Which of the following statements is correct?

Which of the following is correct?

The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage,whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000,and the fair market value is $750,000.What is Lisa's recognized gain or loss?

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

Henrietta and Hollis have been married for 10 years when Hollis dies in a sky-diving accident.Their assets are summarized below. Henrietta and Hollis reside in Wisconsin,a community property state.All of the assets were acquired with community funds and pass to Henrietta.Her basis for each of the assets becomes: Car House Cash from life insurance proceeds

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).

Ben sells stock (adjusted basis of $25,000)to his son,Ray,for its fair market value of $15,000.Ray gives the stock to his daughter,Trish,who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

Sandra's automobile,which is used exclusively in her trade or business,was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

Robert and Diane,husband and wife,live in Pennsylvania,a common law state.They purchased land as joint tenants in 2008 for $300,000.In 2012,Diane dies and bequeaths her share of the land to Robert.The land has a fair market value of $450,000.What is Robert's adjusted basis for the land?

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

Al owns stock with an adjusted basis of $100,000 and a fair market value of $300,000.He gives the stock to Jane on July 1,2011.When Jane dies,the fair market value of the stock is $900,000.Jane's will provides that Al is to receive the stock.Which of the following is false?