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Exam 7: Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

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Question 111

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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.

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Upon conversion from personal use to bus...

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Question 112

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Nat is a salesman for a real estate developer.His employer permits him to purchase a lot for $75,000.The employer's adjusted basis for the lot is $45,000,and its normal selling price is $90,000. What is Nat's recognized gain and his basis for the lot? Recognized gain Basis

A) $0 $ 75,000
B) $0 $ 90,000
C) $15,000 $ 75,000
D) $15,000 $ 90,000
E) $30,000 $105,000

F) A) and E)
G) All of the above

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Question 113

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The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

If boot is received in a § 1031 like-kind exchange,the recognized gain cannot exceed the realized gain.

Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's recognized gain or loss?

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

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.

During 2013,Howard and Mabel,a married couple,decided to sell their residence.The residence has a basis of $162,000 and has been owned and occupied by them for 11 years.The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000.They purchased a new residence in June for $400,000.What is the adjusted basis of the new residence?

If property that has been converted from personal use to business use has appreciated in value,its basis for gain will be the same as the basis for loss.

Paul sells property with an adjusted basis of $45,000 to his daughter Dean,for $38,000.Dean subsequently sells the property to her brother,Preston,for $38,000.Three years later,Preston sells the property to Hun,an unrelated party,for $50,000.What is Preston's recognized gain or loss on the sale of the property to Hun?

On October 1,Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000) .The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

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

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son,Ned,for its fair market value of $105,000.What is Arthur's recognized gain or loss and Ned's basis in the land?

Broker's commissions,legal fees,and points paid by the seller reduce the seller's amount realized.

Albert purchased a tract of land for $140,000 in 2010 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 2013 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2013?

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

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?

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

Gift property (disregarding any adjustment for gift tax paid by the donor) :

Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000.If the property is going to be given to Stuart's nephew,Alex,it is preferable for the transfer to be by inheritance rather than by gift.