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

Ross lives in a house he received as a gift from his father.His father had lived in the house for 12 years.The adjusted basis of the house to his father was $160,000 and the fair market value at the time of the gift was $140,000.Ross sells this residence after living in it for 18 months for $150,000 and purchases a new home for $125,000.He incurs selling expenses of $7,000.What is Ross' recognized gain or loss and basis for the new residence?

Deductions taken for depreciation or cost recovery on business or income-producing property reduce the adjusted basis of the property.

Albert purchased a tract of land for $140,000 in 2006 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000.Highway engineers surveyed the property and indicated that he would probably get $180,000.The highway project was abandoned in 2010 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2010?

Under § 1033,a realized gain on an involuntary conversion can be postponed but a realized loss cannot.

An exchange of two items of personal property (personality)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

A taxpayer cannot replace property before its condemnation and still qualify for nonrecognition treatment.

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1,2010,for $11,000.The maturity date is December 31,2019.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2010,and the adjusted basis for the bonds at the end of 2010,assuming straight-line amortization is appropriate?

Cassie purchases a sole proprietorship for $125,000.The fair market value of the tangible assets is $100,000 and the agreed to value of goodwill is $15,000.Assuming there are no other intangible assets,Cassie's basis for the tangible assets is $108,696 ($100,000 + $8,696)and her basis for the goodwill is $16,304 ($15,000 + $1,304).

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Property that has been converted from personal use to business or income-producing use will be dual basis property if the adjusted basis exceeds the fair market value at the date of conversion.

Paula inherits a home on July 1,2010,that had a basis in the hands of the decedent at death of $180,000 and a fair market value of $345,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $95,000 and move into the inherited home.On September 16,2010,she sells the old residence for $490,000.Paula incurs selling expenses and legal fees of $34,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $85,000.These additions are completed and paid for on November 1,2010.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

If the buyer assumes the seller's liability on the property acquired,the seller's amount realized is decreased by the amount of the liability assumed.

On July 7,2010,Brad received nontaxable stock rights with a fair market value of $4,000.His adjusted basis in the stock is $20,000.Which of the following is correct?

If a distribution by a corporation to a shareholder exceeds the corporation's earnings and profits,the excess first reduces the shareholder's stock basis to zero and any remaining excess is classified as capital gain or ordinary income depending on the shareholder's holding period for the stock.

Iva owns Mauve,Inc.stock (adjusted basis of $40,000)which she sells to Joshua,her brother,for its fair market value of $32,000.Fifteen months later,he sells it to Faye,a friend,for its fair market value of $39,000.Determine Iva's recognized loss,Joshua's recognized gain or loss,and Faye's adjusted basis for the stock. Iva's recognized loss Joshua's recognized gain or loss Faye's basis

Jamie bought her house in 2001 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 1,2010.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 1,2010.What is Jamie's adjusted basis at the date of the sale and the amount realized?

At a particular point in time,a taxpayer can have only one principal residence for § 121 exclusion purposes.

Section 267 provides that realized losses and realized gains from related party transactions are not recognized.

Mel,who is single,sells his principal residence (owned and occupied for 4 years)and excludes $250,000 of the realized gain.If he purchases a new residence three weeks prior to the date of sale,his basis in the new residence is the cost reduced by the amount of the § 121 exclusion.