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

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Question 61

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Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800, she has amortized $300 of the premium.Helen has a recognized gain of $800 $10,800 amount realized - $10,000 adjusted basis).

A) True
B) False

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Question 62

Multiple Choice

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Arthur owns a tract of undeveloped land adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000.What is Arthur's recognized gain or loss and Ned's basis in the land?

A) $0 and $105,000.
B) $0 and $145,000.
C) $40,000) and $105,000.
D) $40,000) and $145,000.
E) None of the above.

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

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Question 63

Multiple Choice

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Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's recognized gain or loss?

Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000.If the property is going to be given to Stuart's nephew, Alex, it is preferable for the transfer to be by inheritance rather than by gift.

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

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

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?

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange, the taxpayer acquires substantially identical stock.

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

An involuntary conversion results from the destruction complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

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.

The basis of property acquired in a bargain purchase is its cost.

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).

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

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

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?