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

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Question 31

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On February 1, Karin purchases real estate for $375,000.The annual property taxes of $5,040 are payable on December 31.Realizing that she will pay the property taxes for the entire year, Karin remits $374,580 to the seller at closing.Karin's adjusted basis for the real estate is:

A) $374,580.
B) $375,000.
C) $375,420.
D) $379,620.
E) None of the above.

F) C) and D)
G) A) and E)

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Question 32

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

A) True
B) False

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Question 33

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In computing the amount realized when the fair market value of the property received cannot be determined, the fair market value of the property surrendered may be used.

The exchange of unimproved real property located in Topeka KS) for improved real property located in Atlanta GA) does not qualify as a like-kind exchange.

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the shareholder- recipient's basis in the stock investment is treated as a capital gain.

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

The holding period for nontaxable stock dividends that are the same type i.e., common on common) includes the holding period of the original shares, but the holding period for nontaxable stock dividends that are not the same type i.e., preferred on common) is new and begins on the date the dividend is received.

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.

Kate exchanges land held as an investment for land and a building owned by Clark, to be used in her business.If Clark is Kate's father, her realized gain of $150,000 must be recognized because they are related parties.

The wash sales rules apply to both gains and losses.

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Sidney, a calendar year taxpayer, owns a building adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business.The building is destroyed by fire on December 12, 2018, and two weeks later he receives insurance proceeds of $600,000.Due to family ties, Sidney decides to move to Columbia, SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2, 2019.By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 $600,000 cost - $150,000 postponed gain).

Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000, his adjusted basis for the delivery truck after the accident is $21,000.

If the alternate valuation date is elected by the executor in 2018, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have received boot in the transaction.

A loss from the sale of a personal use asset that would be disallowed cannot be recognized even if the taxpayer converts the asset to business use prior to its sale.

In addition to other gifts, Megan made a gift of stock to Jeri in 1976.Megan had purchased the stock in 1974 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 1976, what is Jeri's gain basis for the stock?

When boot in the form of cash is given in a like-kind exchange, recognized gain is the greater of the boot or the realized gain.

The terms "realized gain" and "recognized gain" can be used interchangeably; they mean the same thing.