Question 1

Paula inherits a home on July 1, 2012, that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 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 $125,000 and move into the inherited home.On September 16, 2012, she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000. She decides to add a pool, deck, pool house, and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1, 2012.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

Accepted Answer

A) $0; $500,000. 
B) $193,000; $600,000. 
C) $443,000; $600,000. 
D) $475,000; $600,000. 
E) None of the above.

Question 2

Melba gives her niece a drill press to use in her business with a fair market value of $36,000 and a basis in Melba's hands of $41,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery)?

Accepted Answer

A) $0. 
B) $5,000. 
C) $36,000. 
D) $41,000. 
E) None of the above.

Question 3

In addition to other gifts, Megan made a gift of stock to Jeri in 1975.Megan had purchased the stock in 1973 for $7,500.At the time of the gift, the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1975, what is Jeri's gain basis for the stock?

Accepted Answer

A) $7,500. 
B) $8,350. 
C) $9,017. 
D) $20,000. 
E) None of the above.

Question 4

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Accepted Answer

A) True 
 B)False

Question 5

To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Accepted Answer

A) True 
 B)False

Question 6

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Accepted Answer

A) True 
 B)False

Question 7

If a taxpayer reinvests the net proceeds (amount received - related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period, it is possible to defer the recognition of the realized gain.

Accepted Answer

A) True 
 B)False

Question 8

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:

Accepted Answer

A) Recognized to the extent of the deficiency (amount realized not reinvested). 
B) Recognized to the extent of realized gain. 
C) Recognized to the extent of the amount reinvested in excess of the adjusted basis. 
D) Permanently not subject to taxation. 
E) None of the above.

Question 9

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city, she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain from her gross income under § 121 if she and Doug file a joint return.

Accepted Answer

A) True 
 B)False

Question 12

On the sale of property between related parties, realized gains are recognized whereas realized losses are disallowed.

Accepted Answer

A) True 
 B)False

Question 13

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 14

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2012.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1, 2013.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31, 2015.What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?

Accepted Answer

A) $0; $720,000. 
B) $30,000; $750,000. 
C) $30,000; $845,000. 
D) $150,000; $750,000. 
E) None of the above.

Question 15

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

Accepted Answer

A) True 
 B)False

Question 16

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for 6 years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

Accepted Answer

A) $0 and $375,000. 
B) $0 and $425,000. 
C) ($50,000) and $325,000. 
D) ($50,000) and $375,000. 
E) None of the above.

Question 17

Karla owns 200 acres of farm land is southeastern Virginia.Her adjusted basis for the land is $240,000 and there is a $200,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark, New Jersey.The building has a fair market value of $450,000.Chris assumes Karla's mortgage on the land.What is the amount of Karla's recognized gain or loss on the exchange?

Accepted Answer

A) $0. 
B) $200,000. 
C) $250,000. 
D) $410,000. 
E) None of the above.

Question 18

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000.What is her recognized gain or loss?

Accepted Answer

A) $0. 
B) $6,130. 
C) $37,630. 
D) $69,130. 
E) None of the above.

Question 19

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 cost of the replacement property plus the excess of the reinvestment over the amount realized from the involuntary conversion. 
E) None of the above.

Question 20

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1, 2004. In the current tax year, she sells 25 shares of the 100 shares purchased on January 1, 2004, for $2,500.Twenty-five days earlier, she had purchased 30 shares for $3,000.What is Karen's recognized gain or loss on the sale of the stock, and what is her basis in the 30 shares purchased 25 days earlier?

Accepted Answer

A) $375 recognized loss, $3,000 basis in new stock. 
B) $0 recognized loss, $3,000 basis in new stock. 
C) $0 recognized loss, $3,375 basis in new stock. 
D) $0 recognized loss, $3,450 basis in new stock. 
E) None of the above.

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

Melba gives her niece a drill press to use in her business with a fair market value of $36,000 and a basis in Melba's hands of $41,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery) ?

In addition to other gifts, Megan made a gift of stock to Jeri in 1975.Megan had purchased the stock in 1973 for $7,500.At the time of the gift, the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1975, what is Jeri's gain basis for the stock?

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

If a taxpayer reinvests the net proceeds (amount received - related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period, it is possible to defer the recognition of the realized gain.

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) , makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

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 the sale of property between related parties, realized gains are recognized whereas realized losses are disallowed.

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000.What is her recognized gain or loss?

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: