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

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Question 71

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Maurice sells his personal use automobile at a realized loss.Under what circumstances can Maurice deduct the loss? What if the personal use asset was sold at a realized gain?

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Under no circumstance can Maurice recogn...

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Question 72

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Capital recoveries include:

A) The cost of capital improvements.
B) Ordinary repair and maintenance expenditures.
C) Payments made on the principal of a mortgage on taxpayer's building.
D) Amortization of bond premium.
E) All of the above.

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

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Question 73

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The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

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).

In a casualty or theft,the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Tara owns common stock in Taupe,Inc.,with an adjusted basis of $250,000.She receives a preferred stock dividend which is nontaxable.

Peggy uses a delivery van in her business.The adjusted basis is $39,000,and the fair market value is $34,000.The delivery van is stolen and Peggy receives insurance proceeds of $34,000.Determine Peggy's realized and recognized gain or loss.

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.

Under the taxpayer-use test for a § 1033 involuntary conversion,the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

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?

Jason owns Blue Corporation bonds (face value of $10,000) ,purchased on January 1,2013,for $11,000.The bonds have an annual interest rate of 8% and a maturity date of December 31,2022.If Jason elects to amortize the bond premium,what is his taxable interest income for 2013 and the adjusted basis for the bonds at the end of 2013 (assuming straight-line amortization is appropriate) ?

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

Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for 6 years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

Gil's office building (basis of $225,000 and fair market value $275,000)is destroyed by a hurricane.Due to a 30% co-insurance clause,Gil receives insurance proceeds of $192,500 two months after the date of the loss.One month later,Gil uses the insurance proceeds to purchase a new office building for $275,000.His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

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 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.