Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

Accepted Answer

A) True 
 B)False

Question 3

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

Accepted Answer

A) True 
 B)False

Question 4

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).

Accepted Answer

A) True 
 B)False

Question 5

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).

Accepted Answer

A) True 
 B)False

Question 6

Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000.
​

Accepted Answer

A) True 
 B)False

Question 7

Albert purchased a tract of land for $140,000 in 2014 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 2017 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2017?

Accepted Answer

A) $40,000 
B) $60,000 
C) $80,000 
D) $100,000 
E) None of the above

Question 8

Jared, a fiscal year taxpayer with a August 31st year-end, owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24, 2017.If the insurance settlement was $950,000 (received March 1, 2018), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Accepted Answer

A) December 31, 2017. 
B) August 31, 2018. 
C) December 31, 2019. 
D) August 31, 2020. 
E) None of the above.

Question 9

The holding period of property acquired by gift may begin on:

Accepted Answer

A) The date the property was acquired by the donor only. 
B) The date of gift only. 
C) Either the date the property was acquired by the donor or the date of gift. 
D) The last day of the tax year in which the property was originally acquired by the donor. 
E) None of the above.

Question 10

Marsha transfers her personal use automobile to her business (a sole proprietorship).The car's adjusted basis is $30,000 and the fair market value is $16,000.No cost recovery had been deducted by Marsha, since she held the car for personal use.Determine the adjusted basis of the car to Marsha's sole proprietorship including the basis for cost recovery.

Accepted Answer

The answer of Marsha transfers her personal use automobile to...

Question 11

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?

Accepted Answer

The answer of What is the easiest way for a...

Question 12

Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?

Accepted Answer

The answer of Under what circumstances will a distribution by...

Question 13

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Accepted Answer

A) True 
 B)False

Question 14

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later, he receives a 5% common stock dividend.At that time, the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple Corporation stock, the per share basis, and gain recognized upon receipt of the common stock dividend?

Accepted Answer

A) $50,000 basis in stock, $10 basis per share for the original stock and $0 basis per share for the dividend shares, $0 recognized gain. 
B) $50,000 basis in stock, $9.52 basis per share, $0 recognized gain. 
C) $53,125 basis in stock, $10 basis per share for the original stock and $12.50 basis per share for the dividend shares, $3,125 recognized gain. 
D) $53,125 basis in stock, $10.12 basis per share, $3,125 recognized gain. 
E) None of the above.

Question 15

​Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?

Accepted Answer

A) ​If the bond is taxable, Milton must amortize the $3,000 premium over its remaining life. 
B) ​The adjusted basis of the taxable bond remains at $28,000, as the amortized amount is deducted as interest. 
C) ​ If the bond is tax-exempt, Milton can elect to amortize the $3,000 premium over the remaining life of the bond. 
D) ​The adjusted basis of the tax-exempt bond remains at $28,000, as the amortized amount cannot be deducted as interest. 
E) ​None of the above is correct.

Question 16

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

Accepted Answer

A) True 
 B)False

Question 17

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:

Accepted Answer

A) The cost of the replacement property. 
B) The fair market value of the involuntarily converted property minus the postponed gain. 
C) The cost of the replacement property minus the postponed gain. 
D) The amount realized. 
E) None of the above.

Question 18

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000.What is Arthur's recognized gain or loss and Ned's basis in the land?

Accepted Answer

A) $0 and $105,000. 
B) $0 and $145,000. 
C) ($40,000) and $105,000. 
D) ($40,000) and $145,000. 
E) None of the above.

Question 19

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

Accepted Answer

A) $0 
B) $7,000 
C) $7,800 
D) $10,200 
E) None of the above

Question 20

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2013.On January 1, 2017, he sells 125 shares for $5,000.On January 22, 2017, he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

Accepted Answer

A) January 22, 2017. 
B) January 1, 2017. 
C) March 31, 2013. 
D) March 31, 2013, for 125 shares and January 22, 2017, for 10 shares. 
E) None of the above.

Exam 7: Basis, Gain and Loss, and Nontaxable Exchanges

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

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).

The holding period of property acquired by gift may begin on:

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?

Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

​Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000.What is Arthur's recognized gain or loss and Ned's basis in the land?

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2013.On January 1, 2017, he sells 125 shares for $5,000.On January 22, 2017, he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?