Question 1

Bud exchanges land with an adjusted basis of $22,000 and a fair market value of $30,000 for another parcel of land with a fair market value of $28,000 and $2,000 cash. What is Bud's recognized gain or loss?

Accepted Answer

A)  $0 
B)  $2,000 
C)  $6,000 
D)  $8,000 
E)  None of the above

Question 2

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

Accepted Answer

A)  An election can be made to postpone gain on a § 1033 involuntary conversion only if the proceeds received are reinvested in qualifying property no later than two years after the end of the tax year in which a proceeds inflow is received that is large enough to produce a realized gain. 
B)  The postponement of realized gain in a § 1033 involuntary conversion is elective. 
C)  The functional use test is satisfied if a business warehouse is replaced with another business warehouse. 
D)  The taxpayer use test is satisfied if a shopping mall rented to tenants is replaced with an office building to be rented to tenants. 
E)  All of the above are correct.

Question 3

Reggie owns all the stock of Amethyst, Inc. (adjusted basis of $100,000). If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000, Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business. His adjusted basis for $325,000 and the fair market value is $310,000. The fair market value of the smaller airplane is $300,000. In addition, Jake receives cash of $10,000. Calculate Jake's realized and recognized gain or loss and his adjusted basis for the as

Accepted Answer

The answer of Jake exchanges an airplane used in his...

Question 6

Lucinda, a calendar year taxpayer, owned a rental property with an adjusted basis of $312,000 in a major coastal city. Her property was condemned by the city government on October 12, 2018. In order to build a convention center, Lucinda eventually received qualified replacement property from the city government on March 9, 2019. This new property has a fair market value of $410,000.
a. What is Lucinda's recognized gain or loss on the condemnation?
b. What is her adjusted basis for the new property?
c. If, instead of receiving qualifying replacement property, Lucinda was paid $410,000, what is the latest date that she can acquire qualifying replacement property?

Accepted Answer

The answer of Lucinda, a calendar year taxpayer, owned a...

Question 7

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain, but cannot result in a recognized loss.

Accepted Answer

A) True 
 B)False

Question 8

If property that has been converted from personal use to business use has appreciated in value, its basis for gain will be the same as the basis for loss.

Accepted Answer

A) True 
 B)False

Question 9

Mary sells her personal use automobile for $20,000. She purchased the car two years ago for $17,000. What is Mary's recognized gain or loss? It increased in value due to its excellent mileage, yet safe design.

Accepted Answer

A)  $0 
B)  $3,000 
C)  $17,000 
D)  $20,000 
E)  None of the above

Question 10

A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  $0 	$0 
B)  $35,000 $35,000 
C)  $0 $285,000 
D)  $35,000 $285,000 
E)  $285,000 $225,000

Question 12

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000. If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 of cash to her niece. The same preference would exist if the recipient were a qualified charitable organization.

Accepted Answer

A) True 
 B)False

Question 13

Nontaxable stock dividends result in no change to the total basis of the old and new stock, but the basis per share decreases.

Accepted Answer

A) True 
 B)False

Question 14

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000). Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium. Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages. Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 +$300,000) proceeds are invested in the stock market. What is her recognized gain or loss associated with the receipt of the severance damages?

Accepted Answer

A)  $0 
B)  $100,000 
C)  $300,000 
D)  $340,000 
E)  None of the above

Question 15

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 16

A realized loss 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 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

On January 2, 2018, Todd converts his house into a rental property. Todd's basis in the house is $400,000 and its fair market value on the date of conversion is $376,000. What is Todd's basis for purposes of MACRS cost recovery?

Accepted Answer

A)  $0? because it was converted from personal use, it cannot be depreciated. 
B)  $376,000. 
C)  $388,000. 
D)  $400,000. 
E)  None of the above.

Question 19

Marilyn owns 100% of the stock of Lilac, Inc., with an adjusted basis of $45,000. She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000.
a. What is Marilyn's dividend income?
b. What is Marilyn's recognized gain or loss?
c. What is Marilyn's adjusted basis for her stock after the distribution?

Accepted Answer

The answer of Marilyn owns 100% of the stock of...

Question 20

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

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

Bud exchanges land with an adjusted basis of $22,000 and a fair market value of $30,000 for another parcel of land with a fair market value of $28,000 and $2,000 cash. What is Bud's recognized gain or loss?

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

Reggie owns all the stock of Amethyst, Inc. (adjusted basis of $100,000). If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000, Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain, but cannot result in a recognized loss.

If property that has been converted from personal use to business use has appreciated in value, its basis for gain will be the same as the basis for loss.

Mary sells her personal use automobile for $20,000. She purchased the car two years ago for $17,000. What is Mary's recognized gain or loss? It increased in value due to its excellent mileage, yet safe design.

A building located in Virginia (used in business) exchanged for a building located in France (used in business) cannot qualify for like-kind exchange treatment.

Nontaxable stock dividends result in no change to the total basis of the old and new stock, but the basis per share decreases.

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.

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

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:

On January 2, 2018, Todd converts his house into a rental property. Todd's basis in the house is $400,000 and its fair market value on the date of conversion is $376,000. What is Todd's basis for purposes of MACRS cost recovery?

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.