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Exam 14: Property Transactions: Determination of Gain or Loss and Basis Considerations

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Question 71

Multiple Choice

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Robert and Diane,husband and wife,live in Pennsylvania,a common law state.They purchased land as joint tenants in 2010 for $300,000.In 2014,Diane dies and bequeaths her share of the land to Robert.The land has a fair market value of $450,000.What is Robert's adjusted basis for the land?

A) $300,000
B) $375,00
C) $450,000
D) $750,000
E) None of these

F) B) and C)
G) A) and E)

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Question 72

Multiple Choice

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The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage,whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000,and the fair market value is $750,000.What is Lisa's recognized gain or loss?

A) $270,000
B) ($750,000)
C) $0
D) ($480,000)
E) None of these

F) A) and B)
G) A) and C)

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Question 73

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The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Etta received nontaxable stock rights on October 3,2014.She allocated $16,000 of the $50,000 basis for the associated stock to the stock rights.The stock rights are exercised on November 8,2014.The exercise price for the stock is $52,000.What is Etta's basis for the acquired stock?

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

Nancy gives her niece a crane to use in her business with a fair market value of $61,000 and a basis in Nancy's hands of $80,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery) ?

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.

Annette purchased stock on March 1,2014,for $200,000.At December 31,2014,it was worth $210,000.She also purchased a bond on September 1,2014,for $20,000.At year end,it was worth $15,000.Determine Annette's realized and recognized gain or loss.

Tobin inherited 100 acres of land on the death of his father in 2014.A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death) .The father had originally acquired the land in 1971 for $19,000 and prior to his death had made permanent improvements of $6,000.What is Tobin's basis in the land?

The holding period of property acquired by gift may begin on:

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

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold,he should use either a weighted average approach or a LIFO approach.

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?

On February 2,2014,Karin purchases real estate for $375,000.The annual property taxes of $5,000 are payable on December 31.Realizing that she will pay the property taxes for the entire year,Karin remits $374,575 to the seller at closing.Karin's adjusted basis for the real estate is:

Noelle received dining room furniture as a gift from her friend,Jane.Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000.Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500.What is her recognized gain or loss?

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits,the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

If a husband inherits his deceased wife's share of jointly owned property in a common law state,both the husband's original share and the share inherited from the deceased wife are stepped­up or down to the fair market value at the date of the wife's death.

On January 15 of the current taxable year,Merle sold stock with a cost of $40,000 to his brother Ned for $25,000,its fair market value.On June 21,Ned sold the stock to a friend for $26,000. a.What are the tax consequences to Merle and Ned? b.Would Ned recognize any gain if he sold the stock for $41,000?

Robert sold his ranch which was his principal residence during the current taxable year.At the date of the sale,the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000.The buyer paid him $500,000 in cash,agreed to take the title subject to the $200,000 mortgage,and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale.How much is Robert's realized gain on the sale?

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.