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

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Question 41

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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 received boot in the transaction.

A) True
B) False

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Question 42

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Kelly, who is single, sells her principal residence, which she has owned and occupied for 8 years, for $375,000.The adjusted basis is $64,000 and selling expenses are $22,000.She purchases another principal residence three months later for $200,000.Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

A) True
B) False

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Question 43

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Nat is a salesman for a real estate developer.His employer permits him to purchase a lot for $75,000.The employer's adjusted basis for the lot is $45,000, and its normal selling price is $90,000. What is Nat's recognized gain and his basis for the lot? $\begin{array}{ll}\text { Recognized gain }&\text { Basis }\\\text { a. } \$ 0 & \$ 75,000 \\\text { b. } \$ 0 & \$ 90,000 \\\text { c. } \$ 15,000 & \$ 75,000 \\\text { d. } \$ 15,000 & \$ 90,000 \\\text { e. } \$ 30,000 & \$ 105,000\end{array}$

Nontaxable stock dividends result in:

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.

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

Ollie owns a personal use car for which he originally paid $48,000.He trades the car in on a sports utility vehicle (SUV) paying the automobile dealer cash of $30,000.If the negotiated price of the SUV is $49,000, what is Ollie's recognized gain or loss and his adjusted basis for the SUV?

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

Pat owns a 1965 Ford Mustang which he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

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.

Ben sells stock (adjusted basis of $25,000) to his son, Ray, for its fair market value of $15,000.Ray gives the stock to his daughter, Trish, who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

Melvin receives stock as a gift from his uncle.No gift tax is paid.The adjusted basis of the stock is $30,000 and the fair market value is $38,000.Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash.What is his recognized gain and the basis for the bonds?

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.

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock.His first purchase was in 1994 when he acquired 30 shares for $20 a share.In 2001, Alfred bought 150 shares at $10 a share.In 2016, Alfred acquired 200 shares at $50 a share.Alfred intends to sell 125 shares at $60 per share in the current year (2017) .If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2017.On January 11, 2018, the insurance company paid the owner $450,000.The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12, 2018, that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

Steve purchased his home for $500,000.As a sole proprietor, he operates a certified public accounting practice in his home.For this business, he uses one room exclusively and regularly as a home office.In Year 1, $3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2, Steve sustained losses in his business; therefore, no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense, his depreciation expense would have been $3,175.What is the adjusted basis in the home?

Jason owns Blue Corporation bonds (face value of $10,000) , purchased on January 1, 2017, for $11,000.The bonds have an annual interest rate of 6% and a maturity date of December 31, 2026.If Jason elects to amortize the bond premium, what is his taxable interest income for 2017 and the adjusted basis for the bonds at the end of 2017 (assuming straight-line amortization is appropriate) ?

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2017, the date of the decedent's death.The executor distributes the land to Kelly on November 12, 2017, at which time the fair market value is $49,000.The fair market value on February 4, 2018, is $45,000.In filing the estate tax return, the executor elects the alternate valuation date.Kelly sells the land on June 10, 2018, for $48,000.What is her recognized gain or loss?

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $35,000 on the date of gift.No gift tax was paid by the donor.Shontelle subsequently sold the property for $31,000.What is the recognized gain or loss?