Exam 9: Acquisitions of Property

Gordon is the sole shareholder of Whitman Corporation,an S corporation.At the beginning of the year,Gordon's basis in his Whitman stock is $100,000.During the year,Whitman Corporation has operating income of $50,000; dividends from domestic corporations of $15,000; tax-exempt interest of $5,000; nontaxable life insurance proceeds of $10,000 on the death of a key employee; and a capital loss of $15,000.Whitman pays no dividends.What is Gordon's year-end basis in Whitman stock (after the distribution)?

Juan and Dorothy purchase a new residence on May 1,2013.Juan and Dorothy pay the full amount of the 2013 property taxes of $7,200 on their new house when the taxes became due in December of 2013.What amount of the taxes that Juan and Dorothy pay in December 2013 can they deduct on their 2013 tax return?

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.What is Dana's basis for deprecation purposes?

Match each statement with the correct term below. -Direct purchase

Determine the adjusted basis of the following assets. a.Dennis buys land by paying $45,000 in cash and assuming a loan for $45,000.He incurs legal fees and commissions of $5,000.He pays $3,000 to have tree seedlings planted on the property.A flood causes $6,000 of damage to the property.Dennis does not carry flood insurance,so he deducts the total loss on his tax return.His property tax liability for this year is $750 and his interest on the loan is $1,850. b.Tyler buys 100 shares of Oliver Corporation stock at $150 per share plus commissions of $300.At the end of the year,Oliver pays a $10 per share cash dividend and informs shareholders that $6 per share is taxable as a dividend and $4 is a nontaxable dividend. c.Taylor Corporation acquires an asset for $8,000 in its first year of operation.Since the company suffers a loss during this first year of operation,the bookkeeper decides to deduct only half of the depreciation that was allowable on this asset and claims a depreciation deduction of $800,instead of $1,600.

Match each statement with the correct term below. -Holding period

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.After a few months of business use,Dana sells the automobile for $18,000.What is the amount of gain or loss recognized on the sale of the automobile?

Ted purchases some forest land in 2011 with the intention of building a log cabin to use as a vacation home.To obtain the land,Ted pays $10,000 cash,assumes the seller's $19,000 mortgage on the land and pays $3,000 in commissions and legal fees related to the purchase.In 2012,Ted pays a contractor $4,000 to bulldoze and level the site of the log cabin.In 2013,Ted has a well dug and water and sewer lines laid in the ground at a cost of $6,000.Ted paid $2,000 of property taxes in 2011 and $5,000 of property taxes in 2012 and 2013 on the land.What is Ted's basis in the land at the end of 2013?

An asset's holding period normally begins on the day after it is acquired and ends on the day of its disposition.

Sandi sells 100 shares of Gray Corporation stock on December 4,2013.She inherited the stock from Christine,who died on January 30,2013.The executor of the estate used the primary valuation date.Sandi's holding period for the stock is

On July 3,2013,Cynthia receives a gift of a collection of books valued at $10,000.The books have an adjusted basis of $6,000 to the donor.They had been purchased in 2001.Several months after receiving the gift,Cynthia sells the books to a professional collector for $9,000.How is Cynthia's holding period for the books determined?

On February 3 of the current year,Caroline converts her house to a rental property.Caroline's adjusted basis in the house is $120,000 and the fair market value is $150,000 on the date of conversion.What is Caroline's adjusted basis in the rental property for depreciation purposes?

Match each statement with the correct term below. -Amount realized

When a security is sold at a loss and and a substantially identical security has been purchased within 30 days before the sale date the loss is disallowed because it is classified as a wash sale.

Kim owns a truck that cost $35,000 several years ago.After using it personally for two years,she converts the truck to business use when the truck's fair market value is $20,000.She uses the truck in her business and appropriately deducts $5,000 in depreciation.Then,she sells the truck for $42,000.What is Kim's recognized gain or loss on the sale?

Hilliard receives a gift of stock from Martha on June 1 of the current year.Martha paid $15,000 for the stock several years ago.Martha pays a gift tax of $400 on the transfer. I.If the fair market value of the stock on June 1 of the current year is $20,000,Hilliard has a basis in the stock of $15,100. II.If the fair market value of the stock on June 1 of the current year is $14,000,and Hilliard sells the stock for $13,000 on June 2 of the current year,Hilliard realizes a loss on the sale of $1,000.

Courtney is interested in purchasing The Matrix Company.Matrix's assets are: Adjusted Basis Fair Market Value Cash \ 2,300 \ 2,300 Inventory 16,500 19,200 Equipment 13,000 9,000 Land 25,000 40,500 Building 66,600 \ 129,000 Totals I.If Courtney buys the stock of The Matrix for $225,000,the total basis in the assets will be $200,000. II.If Courtney pays Matrix $240,000 for the Matrix assets,Courtney's total basis in all of the assets of the business will be $123,400.

Phyllis purchased an automobile for $3,000 down and a note for $15,000.During the year she paid interest of $1,000.Her basis is $18,000.

Kobe receives a gift of rare books valued at $10,000.The books have an adjusted basis of $6,000 to the donor.Several months later,Kobe sells the books to a professional collector for $7,000.What is Kobe' gain or (loss)on the sale?

Jose is exploring his options to minimize his tax liability for this year.Earlier in the year Jose sold a substantial number of his securities and recognized a $15,000 gain.He would like to mitigate the tax effects of that gain.The remainder of Jose's portfolio consists of 1,000 shares of Garfield Corporation stock.Jose has not sold it because it has a history of paying large dividends.Jose paid $20,000 for the stock,but it is currently trading for $5 per share.Jose is considering selling all of his Garfield stock,realizing the loss,netting it against his capital gains,and then repurchasing 1,000 shares a few days later.He knows he will lose some money due to transaction and brokerage costs,but he feels it may be worth it.Discuss Jose's plan.Relate your analysis to the basic tax concepts that help drive your position.