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

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Question 1

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Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

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The relief provision that permits partia...

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Question 2

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Boyd acquired tax-exempt bonds for $430,000 in December 2019. The bonds, which mature in December 2024, have a maturity value of $400,000. Boyd does not make any elections regarding the amortization of the bond premium. Determine the tax consequences to Boyd when he redeems the bonds in December 2024.

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When Boyd redeems the bonds in 2024, he ...

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Question 3

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Capital recoveries include:

Ralph gives his daughter, Angela, stock (basis of $8,000; fair market value of $6,000) . No gift tax results. If Angela subsequently sells the stock for $10,000, what is her recognized gain or loss?

Katrina, age 58, rented (as a tenant) the house that was her principal residence from January 1, 2019 through December 31, 2020. She purchased the house on January 1, 2021, for $150,000 and continued to occupy it through June 30, 2022. She leased it to a tenant from July 1, 2022, through December 31, 2023. On January 1, 2023, 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.

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?

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000) . Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium. Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium, the state awards Betty $300,000 in severance damages. Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market. What is her recognized gain or loss associated with the receipt of the severance damages?

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

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.

A loss from the sale of a personal use asset that would be disallowed cannot be recognized even if the taxpayer converts the asset to business use prior to its sale.

The amount of a corporate distribution qualifying for capital recovery treatment that exceeds the shareholder- recipient's basis in the stock investment is treated as a capital gain.

Ollie owns a personal use car for which he originally paid $48,000. He trades the car in on a sports utility vehicle (SUV) paying the automobile dealer cash of $30,000. If the negotiated price of the SUV is $49,000, what is Ollie's recognized gain or loss and his adjusted basis for the SUV?

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.

What is the general formula for calculating the adjusted basis of property?

Nancy and Tonya exchanged assets. Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000. The house has a mortgage of $200,000, which is assumed by Tonya. Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000. What is Tonya's realized and recognized gain?

Carlos, who is single, sells his personal residence on November 5, 2019, for $400,000. His adjusted basis was $125,000. He pays realtor's commissions of $20,000. He had owned and occupied the residence for 12 years. Having decided that he no longer wants the burdens of home ownership, he invests the sales proceeds in a mutual fund and enters into a 1-year lease on an apartment. The detriments of renting, including a crying child next door, cause Carlos to rethink his decision. Therefore, he purchases another residence on November 6, 2020, for $275,000. Is Carlos eligible for exclusion of gain treatment under § 121 (exclusion of gain on sale of principal residence)? Calculate Carlos's recognized gain and his basis for the new residence.

The bank forecloses on Lisa's apartment complex. The property had been pledged as security on a nonrecourse mortgage whose principal amount at the date of foreclosure is $750,000. The adjusted basis of the property is $480,000, and the fair market value is $750,000. What is Lisa's recognized gain or loss?

Cole exchanges an asset (adjusted basis of $15,000; fair market value of $25,000) for another asset (fair market value of $19,000). In addition, he receives cash of $6,000. If the exchange qualifies as a like-kind exchange, his recognized gain is $6,000, and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

The basis of inherited property usually is its fair market value on the date of the decedent's death.