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

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Question 91

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

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Question 92

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Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock. His first purchase was in 1994 when he acquired 30 shares for $20 a share. In 2000, Alfred bought 150 shares at $10 a share. In 2015, Alfred acquired 200 shares at $50 a share. Alfred intends to sell 125 shares at $60 per share in the current year (2016) . If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

A) $1,250
B) $3,520
C) $5,950
D) $6,250
E) None of the above

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

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Question 93

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

In a nontaxable exchange, recognition is postponed. In a tax-free transaction, nonrecognition is permanent.

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.

Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $35,000 on the date of gift. No gift tax was paid by the donor. Shontelle subsequently sold the property for $31,000. What is the recognized gain or loss?

What effect do the assumption of liabilities have on a § 1031 like-kind exchange?

Moss exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000. In addition, Moss receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?

Chaney exchanges a truck used in her business for making deliveries for a smaller more fuel-efficient truck to be used in her business for making deliveries. The adjusted basis for her truck is $32,000. The smaller truck has a fair market value of $33,000. In addition, Chaney receives cash of $4,000. a.Calculate Chaney's realized and recognized gain or loss. b.Calculate Chaney's basis for the assets she received.

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.

Reggie owns all the stock of Amethyst, Inc. (adjusted basis of $100,000). If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000, Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

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?

Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value. On June 21, Ned sold the stock to a friend for $26,000. a.What are the tax consequences to Merle and Ned? b.Would Ned recognize any gain if he sold the stock for $41,000?

Dennis, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) which is destroyed by a tornado in October 2016. He receives insurance proceeds of $250,000 in January 2017. If before 2020, Dennis replaces the warehouse with another warehouse costing at least $250,000, he can elect to postpone the recognition of any realized gain.

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

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Annette purchased stock on March 1, 2016, for $200,000. At December 31, 2016, it was worth $210,000. She also purchased a bond on September 1, 2016, for $20,000. At year end, it was worth $15,000. Determine Annette's realized and recognized gain or loss.