Exam 13: Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Lily exchanges a building she uses in her rental business for a building owned by Kendall,her brother,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

Pedro borrowed $45,000 to purchase a machine.He later borrowed $15,000 using the machine as collateral.Both notes are nonrecourse.Eight years later,the machine has an adjusted basis of zero and two outstanding note balances of $30,000 and $6,000.Pedro sells the machine subject to the two liabilities for $21,000.What is his realized gain or loss?

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

Ricky owns all the stock of Amethyst,Inc.(adjusted basis of $100,000).If he receives a distribution from Amethyst of $94,000 and corporate earnings and profits are $10,000,Ricky has a capital gain of $6,000.

To qualify for the § 121 exclusion,the property must have been owned by the taxpayer for the 5 years preceding the date of sale and used by the taxpayer as the principal residence for the last 2 of those years.

Taxpayer owns a home in Atlanta.His company transfers him to Chicago on January 2,2010,and he sells the Atlanta house in early February.He purchases a residence in Chicago on February 3,2010.On December 15,2010,taxpayer's company transfers him to Los Angeles.In January 2011,he sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period,§ 121 treatment does not apply to the sale of the second home.

A donee receives depreciable property worth $85,000 (basis to donor of $150,000)with no gift tax being paid on the transfer.The donee's basis for depreciation purposes is $85,000.

Capital recoveries include:

Tony and Janice have been married and living together in Tony's home for 5 years.He lived in the home alone for 20 years prior to their marriage.They sell the home,which has an adjusted basis of $80,000,for $450,000.Tony and Janice plan to use the § 121 exclusion (exclusion of gain on sale of principal residence).In Janice's prior marriage to Dan,Dan sold his principal residence and used the § 121 exclusion.Janice and Dan filed joint returns during their years of marriage.Tony and Janice purchase a replacement residence for $200,000 one month after the sale.What is the recognized gain and basis for the new home?

If boot in the form of cash is given in a § 1031 like-kind exchange,the realized gain is not recognized.

Alicia buys a beach house for $325,000 which she uses as her personal vacation home.She builds an additional room on the house for $45,000.She sells the property for $450,000 and pays $22,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

Alice owns land with an adjusted basis of $610,000,subject to a mortgage of $350,000.Real estate taxes are $9,000 per calendar year and are payable on December 31.On April 1,2010,Alice sells her land subject to the mortgage for $650,000 in cash,a note for $600,000,and property with a fair market value of $120,000.What is the amount realized?

Jena owns land as an investor.She exchanges the land for a warehouse in which she will store the inventory of her business.The exchange does not qualify for like-kind exchange treatment.

Ben sells stock (adjusted basis of $14,000)to his son,Ray,for its fair market value of $9,500.Ray gives the stock to his daughter,Trish,who subsequently sells it for $13,500.Ben's recognized loss is $0 and Trish's recognized gain is $0 ($13,500 - $9,500 - $4,000).

Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Jeff,a calendar year taxpayer,owns a dry cleaning business (adjusted basis of $220,000).The business is destroyed by a hurricane on October 28,2010.Jeff receives insurance proceeds of $250,000 on January 4,2011.What is the latest date Jeff can reinvest the proceeds in qualified property to avoid recognition of any realized gain?

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?

In the case of a bargain purchase,the adjusted basis of an asset can exceed the cost of the asset to the purchaser.

Kate sells property for $120,000.The buyer pays $2,000 in property taxes that had accrued during the year while the property was still legally owned by Kate.In addition,Kate pays $6,000 in commissions and $2,000 in legal fees in connection with the sale.How much does Kate realize from the sale of her property?