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

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Question 21

Multiple Choice

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Pedro borrowed $125,000 to purchase a machine costing $150,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later,the machine has an adjusted basis of zero and two outstanding note balances of $115,000 and $21,000.Pedro sells the machine subject to the two liabilities for $27,000.What is his realized gain or loss?

A) $0.
B) $27,000.
C) $136,000.
D) $163,000.
E) None of the above.

F) C) and E)
G) A) and B)

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Question 22

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Jesse purchases land and an office building for his business for $200,000 with $50,000 being allocated to the land.During the first year,Jesse deducts cost recovery of $3,050.Jesse's adjusted basis for the building at the end of the first year is $146,950 ($150,000 - $3,050).

A) True
B) False

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Question 23

Multiple Choice

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Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1,2012,for $11,000.The maturity date is December 31,2021.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2012,and the adjusted basis for the bonds at the end of 2012,assuming straight-line amortization is appropriate?

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.

Ashley sells real property for $280,000.The buyer pays $4,000 in property taxes that had accrued during the year while the property was still legally owned by Ashley.In addition,Ashley pays $14,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Ashley realize (the amount realized) from the sale of her property?

If the buyer assumes the seller's liability on the property acquired,the seller's amount realized is decreased by the amount of the liability assumed.

Iva owns Mauve,Inc.stock (adjusted basis of $40,000) which she sells to Joshua,her brother,for its fair market value of $32,000.Fifteen months later,he sells it to Faye,a friend,for its fair market value of $39,000.Determine Iva's recognized loss,Joshua's recognized gain or loss,and Faye's adjusted basis for the stock. Iva's recognized loss Joshua's recognized gain or loss Faye's basis

Katie sells her personal use automobile for $15,000.She purchased the car four years ago for $31,000.What is Katie's recognized gain or loss?

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.

Elbert gives stock worth $28,000 (no gift tax resulted)to his friend,Jeff,on June 8,2012.Elbert purchased the stock on September 1,2005,and his adjusted basis is $22,000.Jeff dies on December 8,2013,and bequeaths the stock to Elbert.At that date,the fair market value of the stock is $31,000.

Which of the following is correct?

If insurance proceeds are received for property used in a trade or business,a casualty transaction can result in recognized gain or recognized loss.

Emma gives her personal use automobile (cost of $29,000; fair market value of $15,000)to her son,Louis,on July 3,2012.She has owned the automobile since July 1,2009.

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.

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: What is Mona's adjusted basis for the land,building,and equipment?

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.

Nigel purchased a blending machine for $125,000 for use in his business.As to the machine,he has deducted MACRS cost recovery of $31,024,maintenance costs of $5,200,and repair costs of $4,000.Calculate Nigel's adjusted basis for the machine.

Over the past 20 years,Alfred has purchased 380 shares of Green,Inc.,common stock.His first purchase was in 1991 when he acquired 30 shares for $20 a share.In 1996,Alfred bought 150 shares at $10 a share.In 2011,Alfred acquired 200 shares at $50 a share.Alfred intends to sell 125 shares at $60 per share in the current year.If Alfred's objective is to minimize gain,what is his recognized gain?

Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000,his adjusted basis for the delivery truck after the accident is $21,000.

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.