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

During 2010,Ted and Judy,a married couple,decided to sell their residence,which had a basis of $225,000.They had owned and occupied the residence for 16 years.To make it more attractive to prospective buyers,they had the outside painted in April at a cost of $10,000 and paid for the work immediately.They sold the house in May for $795,000.Broker's commissions and other selling expenses amounted to $45,000.Since they both are age 68,they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

Tony's factory building was destroyed in a fire (adjusted basis of $90,000;fair market value of $140,000).Of the insurance proceeds of $128,000 he receives,Tony uses $88,000 to purchase additional inventory and invests the remaining $40,000 in short-term certificates of deposit.What is Tony's recognized gain or loss?

Eric and Faye,who are married,jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years,they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence)and if they elect to forgo the § 121 exclusion? With exclusion Elect to forgo

Pierce exchanges an asset (adjusted basis of $14,000;fair market value of $18,000)for another asset (fair market value of $15,000).In addition,he receives cash of $3,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $3,000 and his adjusted basis for the property received is $17,000 ($14,000 + $3,000 recognized gain).

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30,2010.On January 11,2011,the insurance company paid the owner $450,000.The fair market value of the building was $500,000,but under the co-insurance clause,the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12,2011,that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion)is elected?

Kahil exchanges a drill press that is used in his business for another drill press.The old drill press had an adjusted basis of $5,000 and the new drill press has a fair market value of $30,000.What is Kahil's recognized gain or loss and the basis of the new drill press?

If there is a realized gain on a like-kind exchange,both the receipt of boot and the giving of boot result in part or all of the realized gain being recognized.

In a nontaxable exchange,the replacement property is assigned a carryover basis.

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).

Section 121 (exclusion of gain on sale of principal residence)applies only to gains and does not cover losses.

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.

The amortization of bond premium decreases the basis of the bond and the amortization of bond discount increases the basis of the bond.

Rob was given a residence in 2010.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 $188,000.What is Rob's basis for gain?

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?

If the alternate valuation date is elected by the executor,the total basis of inherited property will be less than what it would have been if the primary valuation date and amount had been used.

Which of the following types of transactions qualify for nonrecognition treatment?

A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

Jay sells property with an adjusted basis of $19,000 to his daughter for $12,000.Daughter subsequently sells the property to her brother for $12,000.Two years later,brother sells the property to Hun,an unrelated party,for $21,000.What is brother's recognized gain or loss on the sale of the property?

In October 2010,Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2000 while Jerry purchased his in 2003.In addition to the realty,Jerry receives Pearl,Inc.stock worth $10,000 from Ben.Jerry's realized gain is $25,000.On what date does the holding period for Jerry's realty received from Ben begin? When does the holding period for the stock he receives begin?