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Exam 13: A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

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Question 1

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 2

Multiple Choice

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Which of the following is correct?

A) The deferral of realized gain on a § 1031 like-kind exchange is mandatory.
B) The deferral of realized gain on a direct (into qualified property) § 1033 involuntary conversion is mandatory.
C) The taxpayer can elect to forgo the exclusion of realized gain on a § 121 sale of residence.
D) Only b.and c.are correct.
E) a., b., and c.are correct.

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

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Question 3

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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).

Which of the following statements is correct?

Paul sells property with an adjusted basis of $45,000 to his daughter Dean, for $38,000.Dean subsequently sells the property to her brother, Preston, for $38,000.Three years later, Preston sells the property to Hun, an unrelated party, for $50,000.What is Preston's recognized gain or loss on the sale of the property to Hun?

Which of the following statements is correct?

Which of the following statements is false?

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.

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.

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?

Molanda sells a parcel of land for $25,000 in cash and the buyer assumes Molanda's mortgage of $20,000 on the land.Molanda's amount realized is $45,000.

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

Gabe's office building (adjusted basis of $430,000; fair market value of $500,000) is destroyed by a hurricane.Due to a 20% co-insurance clause, Gabe receives insurance proceeds of only $400,000.If Gabe purchases an office building for $500,000 one month later, its adjusted basis is $530,000 ($500,000 cost + $30,000 postponed loss).

This year, Fran receives a birthday gift of stock worth $75,000 from her aunt.The aunt has owned the stock (adjusted basis $50,000) for 10 years and pays gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000) or $75,000.

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.

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.

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received?

At a particular point in time, a taxpayer can have one or two principal residences for § 121 exclusion purposes.

Maud exchanges a rental house at the beach with an adjusted basis of $475,000 and a fair market value of $460,000 for a rental house at the mountains with a fair market value of $400,000 and cash of $60,000.What is the recognized gain or loss?

Brett owns investment land located in Tucson, Arizona.He exchanges it for other investment land.In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like-kind exchange treatment?