Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

Since wash sales do not apply to gains, it may be desirable to engage in this type of transaction before the end of the tax year.

Accepted Answer

A) True 
 B)False

Question 3

Pedro borrowed $250,000 to purchase a machine costing $300,000. He later borrowed an additional $25,000 using the machine as collateral. Both notes are nonrecourse. Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000. Pedro sells the machine subject to the two liabilities for $45,000. What is his realized gain or loss?

Accepted Answer

A)  $0 
B)  $45,000 
C)  $163,000 
D)  $208,000 
E)  None of the above

Question 4

Liz, age 55, sells her principal residence for $600,000. She purchased it twenty-two years ago for $175,000. Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000. Liz's objective is to minimize the taxes she must pay associated with the sale. Calculate her recognized gain.

Accepted Answer

The answer of Liz, age 55, sells her principal residence...

Question 5

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

Accepted Answer

A) True 
 B)False

Question 6

Janice bought her house in 2009 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, 2018. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized?

Accepted Answer

A)  $370,000 adjusted basis? $661,400 amount realized. 
B)  $370,000 adjusted basis? $659,000 amount realized. 
C)  $370,000 adjusted basis? $665,200 amount realized. 
D)  $325,000 adjusted basis? $663,200 amount realized. 
E)  $325,000 adjusted basis? $694,000 amount realized.

Question 7

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

Accepted Answer

The answer of If a taxpayer purchases a business and...

Question 8

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes. When the SUV is worth $30,000, he contributes it to his business. The gain basis is $45,000, the loss basis is $30,000, and the basis for cost recovery is $45,000.

Accepted Answer

A) True 
 B)False

Question 9

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2014. On January 1, 2018, he sells 125 shares for $5,000. On January 22, 2018, 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, 2018. 
B)  January 22, 2018 for 125 shares and March 31, 2014 for 10 shares. 
C)  March 31, 2014. 
D)  March 31, 2014, for 125 shares and January 22, 2018, for 10 shares. 
E)  None of the above.

Question 10

Nigel purchased a blending machine for $125,000 for use in his business. As to the machine, he has deducted MACRS cost recovery of $31,024, maintenance costs of $5,200, and repair costs of $4,000. Calculate Nigel's adjusted basis for the machine.

Accepted Answer

The answer of Nigel purchased a blending machine for $125,000...

Question 11

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2018, he sells 400 shares for $5,200, while on May 5, 2018, he purchases 200 shares for $3,600.
a. What is Mitch's recognized gain or loss resulting from these transactions?
b. What is Mitch's basis for the stock acquired on May 5, 2018?
c. Could Mitch have obtained different tax consequences in a. and b. if he had sold the 400 shares on December 27, 2018, and purchased the 200 shares on January 5, 2019?

Accepted Answer

The answer of Mitch owns 1,000 shares of Oriole Corporation...

Question 12

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received?

Accepted Answer

A)  Adjusted basis of like-kind property surrendered + gain recognized - fair market value of boot received. 
B)  Fair market value of like-kind property surrendered + gain recognized + fair market value of boot received. 
C)  Fair market value of like-kind property received - postponed gain. 
D)  Only a. and c. 
E)  None of the above.

Question 13

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2018. Sam is a calendar year taxpayer. He receives a condemnation award of $875,000 on March 1, 2019. He builds a new office building at a cost of $845,000 which is completed and paid for on December 31, 2021. 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 14

Hilary receives $10,000 for a 15-foot wide utility easement along one of the boundaries to her property. The easement provides that no structure can be built on that portion of the property. Her adjusted basis for the property is $200,000 and the easement covers 15% of the total acreage. Determine the effect of the $10,000 payment on Hilary's gross income and her basis for the property.

Accepted Answer

The answer of Hilary receives $10,000 for a 15-foot wide...

Question 15

Which of the following statements is correct?

Accepted Answer

A)  The receipt of boot in a § 1031 like-kind exchange can result in the recognition of gain. 
B)  The receipt of boot in a § 1031 like-kind exchange cannot result in the recognition of loss. 
C)  The giving of boot in a § 1031 like-kind exchange can result in the recognition of gain. 
D)  Only a. and b. 
E)  a., b., and c.

Question 16

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.

Accepted Answer

The answer of Explain how the sale of investment property...

Question 17

Parker bought a brand new Ferrari on January 1, 2018, for $125,000. Parker was fatally injured in an auto accident on June 23, 2018, when the fair market value of the car was $105,000. Parker was driving a loaner car from the Ferrari dealership while his car was being serviced. In his will, Parker left the Ferrari to his best friend, Ryan. Ryan's holding period for the Ferrari begins on January 1, 2018.

Accepted Answer

A) True 
 B)False

Question 18

Nontaxable stock dividends result in:

Accepted Answer

A)  A higher cost per share for all shares than before the stock dividend. 
B)  A lower cost per share for all shares than before the stock dividend. 
C)  An increase in the total cost of the old and new stock combined. 
D)  A decrease in the total cost of the old and new stock combined. 
E)  None of the above.

Question 19

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Accepted Answer

A) True 
 B)False

Question 20

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2018, the date of the decedent's death. The executor distributes the land to Kelly on November 12, 2018, at which time the fair market value is $49,000. The fair market value on February 4, 2019, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2019, for $48,000. What is her recognized gain or loss?

Accepted Answer

A)  ($1,000) 
B)  ($2,000) 
C)  ($47,000) 
D)  $1,000 
E)  None of the above

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

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.

Since wash sales do not apply to gains, it may be desirable to engage in this type of transaction before the end of the tax year.

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes. When the SUV is worth $30,000, he contributes it to his business. The gain basis is $45,000, the loss basis is $30,000, and the basis for cost recovery is $45,000.

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2014. On January 1, 2018, he sells 125 shares for $5,000. On January 22, 2018, he purchases 135 shares of Eagle Corporation stock for $6,075. When does Andrew's holding period begin for the 135 shares?

Nigel purchased a blending machine for $125,000 for use in his business. As to the machine, he has deducted MACRS cost recovery of $31,024, maintenance costs of $5,200, and repair costs of $4,000. Calculate Nigel's adjusted basis for the machine.

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received?

Which of the following statements is correct?

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.

Nontaxable stock dividends result in:

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.