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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

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Question 91

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Emma gives her personal use automobile (cost of $32,000; fair market value of $12,000) to her son, Louis, on July 3,2019. She has owned the automobile since July 1, 2016. a. What is Louis' basis for the car? b. When does his holding period begin?

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a. Louis' gain basis is $32,00...

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Question 92

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If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) , makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:

A) Recognized to the extent of the deficiency (amount realized not reinvested) .
B) Recognized to the extent of realized gain.
C) Recognized to the extent of the amount reinvested in excess of the adjusted basis.
D) Permanently not subject to taxation.

E) B) and D)
F) None of the above

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Question 93

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Gene purchased for $45,000 an SUV that 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.

What requirements must be satisfied for a delayed swap to qualify for § 1031 like-kind exchange treatment?

During 2019, Sam and Libby, a married couple, decided to sell their residence, which had a basis of $200,000. They had owned and occupied the residence for 20 years. To make it more attractive to prospective buyers, they had the inside painted in April at a cost of $5,000 and paid for the work immediately. They sold the house in May for $800,000. Broker's commissions and other selling expenses amounted to $50,000. They purchased a new residence in July for $400,000. What is the recognized gain and the adjusted basis of the new residence?

In October 2019, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange. Ben bought his real estate in 2008 while Jerry purchased his in 2011. In addition to the realty, Ben receives Pearl, Inc. stock worth $10,000 from Jerry. Ben's realized gain is $30,000. On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?

Liz, age 55, sells her principal residence for $600,000. She purchased it 22 years ago for $175,000. Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000. Liz's objective is to minimize the taxes she must pay associated with the sale. Calculate her recognized gain.

To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:

On September 18, 2019, Jerry received land and a building from Ted as a gift. Ted had purchased the land and building on March 5, 2016, and his adjusted basis and the fair market value at the date of the gift were as follows: $\begin{array} { l r r } \text { Asset } & \text { AdjustedBasis } & \text { FMV } \\\text { Land } & \$ 150,000 & \$ 200,000 \\\text { Bulding } & 90,000 & 100,000\end{array}$ 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.

In 2015, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2019. At that time, the fair market value of the car had declined to $10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with out-of-pocket costs of $5,000. She later sells the car for $30,000. What is Julia's recognized gain or loss on the sale of the car?

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

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?

Dennis, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) that is destroyed by a tornado in October 2019. He receives insurance proceeds of $250,000 in January 2020. If before 2022, Dennis replaces the warehouse with another warehouse costing at least $250,000, he can elect to postpone the recognition of any realized gain.

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock. His first purchase was in 1996 when he acquired 30 shares for $20 a share. In 2003, Alfred bought 150 shares at $10 a share. In 2018, Alfred acquired 200 shares at $50 a share. He intends to sell 125 shares at $60 per share in the current year (2019) . If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

When a property transaction occurs, what four questions should be considered with respect to the sale or other disposition?

Hilary receives $10,000 for a 15-foot wide utility easement along one of the boundaries to her property. The easement provides that no structure can be built on that portion of the property. Her adjusted basis for the property is $200,000 and the easement covers 15% of the total acreage. Determine the effect of the $10,000 payment on Hilary's gross income and her basis for the property.

Alice owns land with an adjusted basis of $610,000 subject to a mortgage of $350,000. On April 1, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000. What is the amount realized?