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Exam 7: Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges

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Question 1

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When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he should use either a weighted average approach or a LIFO approach.

A) True
B) False

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Question 2

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Terry exchanges real estate (acquired on August 25, 2010) held for investment for other real estate to be held for investment on September 1, 2016. None of the realized gain of $10,000 is recognized, and Terry's adjusted basis for the new real estate is a carryover basis of $80,000. Consequently, Terry's holding period for the new real estate begins on August 25, 2010.

A) True
B) False

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Question 3

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If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have received boot in the transaction.

Paula inherits a home on July 1, 2016 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death. She decides to sell her old principal residence, which she has owned and occupied for 9 years, with an adjusted basis of $125,000 and move into the inherited home. On September 16, 2016, she sells the old residence for $600,000. Paula incurs selling expenses of $30,000 and legal fees of $2,000. She decides to add a pool, deck, pool house, and recreation room to the inherited home at a cost of $100,000. These additions are completed and paid for on November 1, 2016. What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

Albert purchased a tract of land for $140,000 in 2013 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2016 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2016?

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes. When the SUV is worth $30,000, he contributes it to his business. The gain basis is $45,000, the loss basis is $30,000, and the basis for cost recovery is $45,000.

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

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2016, he sells 400 shares for $5,200, while on May 5, 2016, he purchases 200 shares for $3,600. a.​What is Mitch's recognized gain or loss resulting from these transactions? a. and b.​What is Mitch's basis for the stock acquired on May 5, 2016? b. if he had sold the 400 shares on December 27, 2016, and purchased the 200 shares on January 5, 2017? c.​Could Mitch have obtained different tax consequences in

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

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

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.

Patty's factory building, which has an adjusted basis of $475,000, is destroyed by fire on April 8, 2016. Insurance proceeds of $500,000 are received on June 1, 2016. She has a new factory building constructed for $490,000, which she occupies on October 1, 2016. Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

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

The holding period for property acquired by gift is automatically long term.

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

Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock. Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000. Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000. ​

Hubert purchases Fran's jewelry store for $950,000. The identifiable assets of the business are as follows: ​ Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete. How should Hubert allocate the $950,000 purchase price to the assets?

For each of the following involuntary conversions, determine if the property qualifies as replacement property. a.​Chuck's restaurant building is destroyed by fire. He clears the site and builds another restaurant building. b.​​Diane's warehouse which she used for storing inventory is destroyed by a tornado. She purchases another warehouse in which she will store inventory. c.​​Part of Andrew's dairy farm land is condemned to make way for an interstate highway. He uses the condemnation proceeds to construct a barn to be used for storing cattle feed. d.​​Liz owns a shopping mall which is destroyed by a flood. Since the tenant occupancy rate was down, she uses the insurance proceeds to purchase an office building which she will rent to tenants. e.​​Eleanor's Maserati Gran Turismo is stolen. The original cost was $125,000, and she had used it exclusively for personal use. Due to the limited supply of this model, it had appreciated in value. Eleanor received insurance proceeds of $130,000 and uses the proceeds to purchase a replacement Gran Turismo.

Dena owns 500 acres of farm land in southeastern Maryland. Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land. She exchanges the land for an office building owned by Chris in Newark, New Jersey. The building has a fair market value of $900,000. Chris assumes Dena's mortgage on the land. What is the amount of Dena's recognized gain or loss on the exchange?

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2012. On January 1, 2016, he sells 125 shares for $5,000. On January 22, 2016, he purchases 135 shares of Eagle Corporation stock for $6,075. When does Andrew's holding period begin for the 135 shares?