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

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Question 21

True/False

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Broker's commissions,legal fees,and points paid by the seller reduce the seller's amount realized.

A) True
B) False

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Question 22

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Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home.She builds an additional room on the house for $40,000.She sells the property for $560,000 and pays $28,000 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) $0
B) $38,000
C) $70,000
D) $110,000
E) None of the above

F) B) and D)
G) All of the above

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Question 23

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Discuss the treatment of realized gains from involuntary conversions.

Leonore exchanges 5,000 shares of Pelican,Inc. ,stock for 2,000 shares of Blue Heron,Inc. ,stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000. ​

If boot is received in a § 1031 like-kind exchange,the recognized gain cannot exceed the realized gain.

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.

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.

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?

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?

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

To qualify for the § 121 exclusion,the property must have been used by the taxpayer for the 5 years preceding the date of sale and owned by the taxpayer as the principal residence for the last 2 of those years.

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

Tobin inherited 100 acres of land on the death of his father in 2015.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 1972 for $19,000 and prior to his death had made permanent improvements of $6,000.What is Tobin's basis in the land?

Cole exchanges an asset (adjusted basis of $15,000;fair market value of $25,000)for another asset (fair market value of $19,000).In addition,he receives cash of $6,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $6,000 and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

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

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes.When the SUV is worth $30,000,he contributes it to his business.The gain basis is $45,000,the loss basis is $30,000,and the basis for cost recovery is $45,000.

Bud exchanges a business use machine with an adjusted basis of $22,000 and a fair market value of $30,000 for another business use machine with a fair market value of $28,000 and $2,000 cash.What is Bud's recognized gain or loss?

For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e. ,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e. ,greater than 50% of the capital interests or profits interest in the partnership).

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31,2011.On January 1,2015,he sells 125 shares for $5,000.On January 22,2015,he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?