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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

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Question 131

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Paula inherits a home on July 1, 2014 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, 2014, 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, 2014. What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

A) $0; $500,000.
B) $193,000; $600,000.
C) $443,000; $600,000.
D) $475,000; $600,000.
E) None of the above.

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

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Question 132

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Jamie 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 nephews. She makes a gift of depreciated property (i.e., adjusted basis exceeds fair market value) to Will, a gift of appreciated property (i.e., fair market value exceeds adjusted basis) to Jim, and leaves appreciated property to Sam in her will. Each of the properties has the same fair market value. From an income tax perspective, which nephew is her favorite?

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Jamie appears to like Sam best. Sam rece...

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Question 133

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

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?

Lola owns land as an investor. She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory. The exchange does qualify for like-kind exchange treatment.

Katrina, age 58, rented (as a tenant) the house that was her principal residence from January 1, 2014 through December 31, 2015. She purchased the house on January 1, 2016, for $150,000 and continued to occupy it through June 30, 2017. She leased it to a tenant from July 1, 2017, through December 31, 2018. On January 1, 2019, she sells the house for $350,000. She incurs a realtor's commission of $20,000. Calculate her recognized gain if her objective is to minimize the recognition of gain and she does not intend to acquire another residence.

Purchased goodwill is assigned a basis equal to cost, which is calculated using the residual method associated with the purchase of a business.

Patty's factory building, which has an adjusted basis of $475,000, is destroyed by fire on April 8, 2014. Insurance proceeds of $500,000 are received on June 1, 2014. She has a new factory building constructed for $490,000, which she occupies on October 1, 2014. Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

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

Sam and Cheryl, husband and wife, own property jointly. The property has an adjusted basis of $400,000 and a fair market value of $500,000. a. Discuss the rules for the calculation of the adjusted basis of the property to Sam if he inherits his wife's share of the property and Sam and Cheryl live in a community property state. b. If they live in a common law state?

Deidra has owned and occupied her principal residence for 10 years. Two and one-half years ago she married Doug who moved into her house. Doug has never owned a home. When Deidra is transferred to another city, she sells the house and has a realized gain of $425,000. Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

A strip along the boundary of Joy's land is condemned for a utility easement. She receives a payment of $7,500 from the utility company. Her basis in the land is $80,000. Which of the following is correct?

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Byron, who lived in New Hampshire, acquired a personal residence ten years ago when he was 52 years old. During this period he has occupied the residence for only eight months (out of 12) each year due to winter vacations in Florida. Is Byron eligible for exclusion of gain under § 121?

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

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

Matt, who is single, sells his principal residence, which he has owned and occupied for 5 years, for $435,000. The adjusted basis is $140,000 and the selling expenses are $20,000. Three days after the sale he purchases another residence for $385,000. Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Which of the following is incorrect?

If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Which of the following statements is correct?