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

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Question 41

Multiple Choice

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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?

A) $0
B) ($4,000)
C) ($10,000)
D) ($18,000)

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

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Question 42

True/False

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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.

A) True
B) False

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Question 43

Multiple Choice

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Janice bought her house in 2010 for $395,000.Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing.She sells the house on July 1, 2019.Her realtor charged $34,700 in commissions.Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper.Don buys the house for $500,000 in cash and assumes her mortgage of $194,000.What is Janice's adjusted basis at the date of the sale and the amount realized?

Which of the following is correct?

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.

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock.His first purchase was in 1996 when he acquired 30 shares for $20 a share.In 2003, Alfred bought 150 shares at $10 a share.In 2018, Alfred acquired 200 shares at $50 a share.He intends to sell 125 shares at $60 per share in the current year (2019) .If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

In 2015, Harold purchased a classic car that he planned to restore for $12,000.However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2019.At that time, the fair market value of the car had declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out-of-pocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?

Nontaxable stock dividends result in no change to the total basis of the old and new stock, but the basis per share decreases.

The wash sales rules apply to both gains and losses.

Kelly inherits land that had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2019, the date of the decedent's death.The executor distributes the land to Kelly on November 12, 2019, at which time the fair market value is $49,000.The fair market value on February 4, 2020, is $45,000.In filing the estate tax return, the executor elects the alternate valuation date.Kelly sells the land on June 10, 2020, for $48,000.What is her recognized gain or loss?

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain but cannot result in a recognized loss.

Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800, she has amortized $300 of the premium.Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

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

The adjusted basis of an asset is the original cost (or basis) plus capital recoveries less capital additions.

Yolanda buys a house in the mountains for $450,000 that she uses as her personal vacation home.She builds an additional room on the house for $40,000.She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

Ben sells stock (adjusted basis of $25,000) to his son, Ray, for its fair market value of $15,000.Ray gives the stock to his daughter, Trish, who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange, the taxpayer acquires substantially identical stock.

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.