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Exam 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxabl

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Question 71

True/False

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A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

A) True
B) False

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Question 72

Multiple Choice

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Pedro borrowed $250,000 to purchase a machine costing $300,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later,the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000.Pedro sells the machine subject to the two liabilities for $45,000.What is his realized gain or loss?

A) $0
B) $45,000
C) $163,000
D) $208,000
E) None of the above

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

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Question 73

True/False

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

Maud exchanges a rental house at the beach with an adjusted basis of $225,000 and a fair market value of $200,000 for a rental house at the mountains with a fair market value of $180,000 and cash of $20,000.What is the recognized gain or loss?

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130,she sells the house for $120,000.What is her recognized gain or loss?

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.

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

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?

If the buyer assumes the seller's liability on the property acquired,the seller's amount realized is decreased by the amount of the liability assumed.

Define a bargain purchase of property and discuss the related tax consequences.

On September 18,2015,Jerry received land and a building from Ted as a gift.Ted had purchased the land and building on March 5,2012,and his adjusted basis and the fair market value at the date of the gift were as follows: Asset Adjusted Basis FMV Land $150,000 $200,000 Building 90,000 100,000 Ted paid no gift tax on the transfer to Jerry. a.​ Determine Jerry's adjusted basis and holding period for the land and building. b.​ Assume instead that the FMV of the land was $89,000 and the FMV of the building was $60,000.Determine Jerry's adjusted basis and holding period for the land and building.

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?

During 2015,Ted and Judy,a married couple,decided to sell their residence,which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.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?

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.

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

Lenny and Beverly have been married and living together in Lenny's home for 6 years.He lived in the home alone for 20 years prior to their marriage.They sell the home,which has an adjusted basis of $120,000,for $700,000.Lenny and Beverly plan to use the § 121 exclusion (exclusion of gain on sale of principal residence) .In Beverly's prior marriage to Dan,Dan sold his principal residence and used the § 121 exclusion.Beverly and Dan filed joint returns during their seven years of marriage.They had lived in Dan's house throughout their marriage.Dan's sale had occurred one year prior to the divorce.Lenny and Beverly purchase a replacement residence for $650,000 one month after the sale.What is the recognized gain and basis for the new home?

How is the donee's basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax.

Wade is a salesman for a real estate development company.Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000.The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000.Wade must recognize a gain of $10,000 ($100,000 developer's adjusted basis - $90,000 cost to Wade),and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

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.

Eunice Jean exchanges land held for investment located in Rolla,Missouri,for land to be held for investment located near Madrid,Spain.Her basis for the land given up is $450,000 and the fair market value of the land received is $500,000.Eunice Jean also receives cash of $45,000. ​ a.What is Eunice Jean's recognized gain? b.What is her basis for the land received?