Exam 13: Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Sam sells land with an adjusted basis of $35,000 and a fair market value of $50,000 to Cynthia,his wife,for $50,000.Discuss how the tax consequences would differ if Sam and Cynthia had never been married.

Jessica inherits land from her uncle.His adjusted basis in the land (purchased in November 2004)was $110,000 and it was included in his estate at a value of $225,000.

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

If a taxpayer purchases taxable bonds at a premium,the amortization of the premium is elective.However,if a taxpayer purchases tax-exempt bonds at a premium,the amortization of the premium is mandatory.Explain this difference in the treatment.

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

Louis owns a condominium in New Orleans which has been his principal residence for 12 years.He wants to be near Lake Ponchartrain since he enjoys water activities.Therefore,he sells the condominium.His original intent was to purchase a house in New Orleans near the lake.However,the cost of such properties far exceeded his sales proceeds.He was able to purchase a house on the lake in Covington,which is located across the causeway.He invested all of his sales proceeds in the Covington house.After two months of commuting over an hour to and from work each day,he decides to rent an efficiency apartment in New Orleans near his office.He spends the weekends and vacations at his home in Covington.

Walter acquired tax-exempt bonds for $330,000 in December 2010.The bonds,which mature in December 2015,have a maturity value of $300,000.Walter does not make any elections regarding the amortization of the bond premium.Determine the tax consequences to Walter when he redeems the bonds in December 2015.

What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?

Alice is terminally ill and does not expect to live much longer.Pondering the consequences of her estate,she decides how to allocate her property to her nieces.She makes a gift of depreciated property (i.e. ,adjusted basis exceeds fair market value)to Marsha,a gift of appreciated property (i.e. ,fair market value exceeds adjusted basis)to Jan,and leaves appreciated property to Cindy in her will.Each of the properties has the same fair market value.From an income tax perspective,which niece is her favorite?

For disallowed losses on related-party transactions,who has the right of offset?

What is the difference between the depreciation (or cost recovery)allowed and the depreciation (or cost recovery)allowable and what effect does each have on the adjusted basis of property?

Laura transfers her personal use automobile to her business.The car's adjusted basis is $20,000 and the fair market value is $15,000.Determine the adjusted basis of the car to Laura's sole proprietorship including the basis for cost recovery.

Janet,age 68,sells her principal residence for $500,000.She purchased it twenty-two years ago for $150,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Janet's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.

Mel gives a parcel of land to his son,Scott.He had purchased the land in 1997 for $140,000 and its fair market value on the date of the gift is $125,000.No gift tax is paid.Scott subsequently sells the land for $131,000.

Can related parties take advantage of the like-kind exchange provisions?

For each of the following involuntary conversions,determine if the property qualifies as replacement property.

Use the following data to determine the sales price of Tricia's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion.

Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000)from personal use to business use.Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis)from his mother as a gift.Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.

Hubert purchases Fran's jewelry store for $950,000.The identifiable assets of the business are as follows: Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete.How should Hubert allocate the $950,000 purchase price to the assets?

Melissa,age 58,marries Arnold,age 50,on June 1,2010.Melissa decides to sell her principal residence on August 1,2010,which she has owned and occupied for the past 30 years.Arnold has never owned a house.However,while he was married to Kelly who died 6 months prior to his marriage to Melissa,Kelly used the § 121 election on the sale of her residence in January 2008 to reduce her realized gain from $123,000 to $0.Kelly used the sales proceeds to pay off Arnold's gambling debts.Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?