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

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Question 31

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During 2012, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $225,000.They had owned and occupied the residence for 16 years.To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $10,000 and paid for the work immediately.They sold the house in May for $795,000.Broker's commissions and other selling expenses amounted to $45,000.Since they both are age 68, they decide to rent an apartment. They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

A) $0.
B) $15,000.
C) $25,000.
D) $525,000.
E) None of the above.

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

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Question 32

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

A) True
B) False

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Question 33

True/False

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The holding period for property acquired by gift is automatically long term.

Gene purchased an SUV for $42,000 which he uses 100% for personal purposes.When the SUV is worth $29,000, he contributes it to his business.The gain basis is $42,000, the loss basis is $29,000, and the basis for cost recovery is $29,000.

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000) . Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce's recognized gain or loss?

Purchased goodwill is assigned a basis equal to cost, and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.

Henrietta and Hollis have been married for 10 years when Hollis dies in a sky-diving accident.Their assets are summarized below. Henrietta and Hollis reside in Wisconsin, a community property state.All of the assets were acquired with community funds and pass to Henrietta.Her basis for each of the assets becomes: Car House Cash from life insurance proceeds

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

If boot in the form of cash is given in a § 1031 like-kind exchange, the realized gain may be recognized.

Ashley sells real property for $280,000.The buyer pays $4,000 in property taxes that had accrued during the year while the property was still legally owned by Ashley.In addition, Ashley pays $14,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Ashley realize (the amount realized) from the sale of her property?

In determining the basis of like-kind property received, postponed losses are:

A condemned office building owned and used in the business by a taxpayer can be replaced by land and qualify for nonrecognition treatment.

The taxpayer can elect to have the exclusion of gain under § 121 (sale of principal residence) not apply.

On October 1, Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000) .The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

Molanda sells a parcel of land for $25,000 in cash and the buyer assumes Molanda's mortgage of $20,000 on the land.Molanda's amount realized is $45,000.

Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage, she cannot use the § 121 exclusion.

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1, 2012, for $11,000.The maturity date is December 31, 2021.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2012, and the adjusted basis for the bonds at the end of 2012, assuming straight-line amortization is appropriate?

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?

Alicia buys a beach house for $425,000 which she uses as her personal vacation home.She builds an additional room on the house for $45,000.She sells the property for $510,000 and pays $30,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

A factory building owned by Amber, Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?