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Exam 14: Property Transactions: Determination of Gain or Loss and Basis Considerations

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Question 21

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Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

A) $1,350,000
B) $1,378,000
C) $1,385,000
D) $1,413,000
E) None of these

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

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Question 22

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Tara owns common stock in Taupe,Inc. ,with an adjusted basis of $250,000.She receives a preferred stock dividend which is nontaxable. a.What effect does the preferred stock dividend have on Tara's adjusted basis of the common stock? b.How is the basis of the preferred stock calculated? c.What effect does the preferred stock dividend have on Tara's gross income?

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i.Part of the adjusted basis of the comm...

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Question 23

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Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000)from personal use to business use.Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis)from his mother as a gift.Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000.If the stock or cash is going to be given to her niece,it is preferable for the taxpayer to sell the stock and give the $8,000 of cash to her niece.The same preference would exist if the recipient were a qualified charitable organization.

Marilyn owns 100% of the stock of Lilac,Inc. ,with an adjusted basis of $45,000.She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000. a.What is Marilyn's dividend income? b.What is Marilyn's recognized gain or loss? c.What is Marilyn's adjusted basis for her stock after the distribution?

The amount received for a utility easement on land is included in the gross income of the taxpayer.

What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?

Omar has the following stock transactions during 2014: a.What is Omar's recognized gain or loss on the stock sales if his objective is to minimize the recognized gain and to maximize the recognized loss? b.What is Omar's recognized gain or loss if he does not identify the shares sold?

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

If Wal-Mart stock increases in value during the tax year by $6,000,the amount realized is a positive $6,000.

Mona purchased a business from Judah for $1,000,000.Judah's records and an appraiser provided her with the following information regarding the assets purchased: $\begin{array}{lrr}&\text { Adjusted Basis }&\text { FMV }\\\text { Land } & \$ 195,000 & \$ 270,000 \\\text { Building } & 310,000 & 450,000 \\\text { Equipment } & 95,000 & 180,000\end{array}$ What is Mona's adjusted basis for the land,building,and equipment?

Lois received nontaxable stock rights with a fair market value of $6,000.The fair market value of the stock on which the rights were received is $24,000 (cost $14,000).Assume the rights are exercised by paying $32,000 plus the rights.Discuss how to calculate the basis of the old stock and the basis of the new stock.

In 2010,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 2014.At this time,the fair market value of the car has declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out­of­pocket 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?

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.

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4,2014,the date of the decedent's death.The executor distributes the land to Kelly on November 12,2014,at which time the fair market value is $49,000.The fair market value on February 4,2015,is $45,000.In filing the estate tax return,the executor elects the alternate valuation date.Kelly sells the land on June 10,2015,for $48,000.What is her recognized gain or loss?

Emma gives her personal use automobile (cost of $32,000;fair market value of $12,000)to her son,Louis,on July 3,2014.She has owned the automobile since July 1,2011. a.What is Louis' basis for the car? b.When does his holding period begin?

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?

The basis of personal use property converted to business use is:

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

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