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Exam 13: Property Transactions

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Question 41

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If a taxpayer purchases taxable bonds at a premium,the amortization of the premium is elective.However,if a taxpayer purchases tax-exempt bonds at a premium,the amortization of the premium is mandatory.Explain this difference in the treatment.

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Question 42

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Seth and Cheryl,husband and wife,own property jointly.The property has an adjusted basis of $25,000 and a fair market value of $30,000.

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Question 43

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Discuss the treatment of realized gains from involuntary conversions.

a.Orange Corporation exchanges a warehouse located in New York (adjusted basis of $480,000)for a warehouse located in New Jersey (adjusted basis of $450,000; fair market value of $440,000).Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange,and the basis of the warehouse acquired.

What is the general formula for calculating the adjusted basis of property?

Sam sells land with an adjusted basis of $35,000 and a fair market value of $50,000 to Cynthia,his wife,for $50,000.Discuss how the tax consequences would differ if Sam and Cynthia had never been married.

Annette purchased stock on March 1,2011,for $150,000.At December 31,2011,it was worth $160,000.She also purchased a bond on September 1,2011,for $20,000.At year end,it was worth $12,000.Determine Annette's realized and recognized gain or loss.

For disallowed losses on related-party transactions,who has the right of offset?

Evelyn's office building is destroyed by fire on July 12,2011.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31,2011.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion)postponement treatment.

Teresa inherits land from her first cousin,Drew,in 2011.Drew's adjusted basis in the land (purchased in September 2008)was $200,000 and it was included in his estate at a value of $270,000.

Albert,age 57,leased a house for one year in Denver with an option to buy as his personal residence.At the end of the lease,he purchased the house.He lived there for an additional 25 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months,he rented the Denver house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period,Albert's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Albert's house in Denver purchased it at the end of the 24-month extended lease period.Is Albert eligible to elect exclusion treatment under § 121?

Define a bargain purchase of property and discuss the related tax consequences.

Discuss the application of holding period rules to property acquired by gift and inheritance.

Alice is terminally ill and does not expect to live much longer.Pondering the consequences of her estate,she decides how to allocate her property to her nieces.She makes a gift of depreciated property (i.e.,adjusted basis exceeds fair market value)to Marsha,a gift of appreciated property (i.e.,fair market value exceeds adjusted basis)to Jan,and leaves appreciated property to Cindy in her will.Each of the properties has the same fair market value.From an income tax perspective,which niece is her favorite?

For a corporate distribution of cash or other property to a shareholder,when does dividend income or a return of capital result?

Ashley sells investment land (adjusted basis of $190,000)that she has owned for 4 years to her husband,Richard,for its fair market value of $175,000.

Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.

Rosa exchanges a truck used in her business for making deliveries for a smaller more fuel-efficient truck to be used in her business for making deliveries.The adjusted basis for her truck is $14,000.The smaller truck has a fair market value of $23,000.In addition,Rosa receives cash of $7,000.

Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?

Mel gives a parcel of land to his son,Scott.He had purchased the land in 1998 for $150,000 and its fair market value on the date of the gift is $142,000.No gift tax is paid.Scott subsequently sells the land for $148,000.