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

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Question 1

True/False

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If the fair market value of the property on the date of death is greater than on the alternate valuation date,the use of the alternate valuation amount is mandatory.

A) True
B) False

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False

Question 2

Multiple Choice

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Shontelle received a gift of income-producing property with an adjusted basis of $41,000 to the donor and fair market value of $38,000 on the date of gift.Gift tax of $6,000 was paid by the donor.Shontelle subsequently sold the property for $36,000.What is the recognized gain or loss?

A) $3,000.
B) ($3,000) .
C) ($4,000) .
D) ($10,000) .
E) None of the above.

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

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Question 3

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If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased assets?

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?

Renee purchases taxable bonds with a face value of $200,000 for $212,000.The annual interest paid on the bonds is $10,000.Assume Renee elects to amortize the bond premium.The total premium amortization for the first year is $1,600.

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

Khalid sells two personal use assets during the taxable year.A gain of $6,000 is realized on the sale of one asset and a loss of $2,000 is realized on the sale of the other asset.What is the recognized gain or loss?

Since wash sales do not apply to gains,it may be desirable to engage in this type of transaction before the end of the tax year.

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.

Which of the following statements is false?

The basis of property received by gift is always a carryover basis.

Justin owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $9,800).On April 27,2012,he sells 300 shares for $2,800,while on May 5,2012,he purchases 200 shares for $2,500.

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

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?

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

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later,he receives a 5% common stock dividend.At that time,the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple Corporation stock,the per share basis,and gain recognized upon receipt of the common stock dividend?

Parker bought a brand new Ferrari on January 1,2012,for $125,000.Parker was fatally injured in an auto accident on June 23,2012,when the fair market value of the car was $105,000.Parker was driving a loaner car from the Ferrari dealership while his car was being serviced.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on June 23,2012.

Melba gives her niece a drill press to use in her business with a fair market value of $36,000 and a basis in Melba's hands of $41,000.No gift tax was paid.What is the niece's basis for depreciation (cost recovery) ?

Emma gives 1,000 shares of Green,Inc.stock to her niece,Margaret.Emma's adjusted basis for the stock is $200,000 and the fair market value is $300,000.Seven months after the gift,Margaret is killed in an airplane accident.Emma inherits the stock which then is worth $350,000.What is the adjusted basis of the inherited stock to Emma?

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