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

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Question 141

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What is the difference between the depreciation (or cost recovery) allowed and the depreciation (or cost recovery) allowable and what effect does each have on the adjusted basis of property?

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Normally,there is no difference between ...

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Question 142

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Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1,2017,for $11,000.The maturity date is December 31,2026.The annual interest rate is 4%.What is the amount of taxable interest income that Karen should report for 2017,and the adjusted basis for the bonds at the end of 2017,assuming straight-line amortization is appropriate?

A) $0 and $11,000
B) $0 and $10,900
C) $100 and $11,000
D) $100 and $10,900
E) None of the above

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

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Question 143

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Leonore exchanges 5,000 shares of Pelican,Inc.,stock for 2,000 shares of Blue Heron,Inc.,stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000. ​

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.

Robert and Diane,husband and wife,live in Pennsylvania,a common law state.They purchased land as joint tenants in 2013 for $300,000.In 2017,Diane dies and bequeaths her share of the land to Robert.The land has a fair market value of $450,000.What is Robert's adjusted basis for the land?

Ramon sells land with an adjusted basis of $120,000 and a fair market value of $175,000 to Pauline,his wife,for $175,000.Discuss how the tax consequences would differ if Ramon and Pauline had never been married.

As part of the divorce agreement,Tyler transfers his ownership interest in their personal residence to Lupe.The house had been jointly owned by Tyler and Lupe and the adjusted basis is $520,000.At the time of the transfer to Lupe,the fair market value is $800,000.What is the recognized gain to Tyler,and what is Lupe's basis for the house?

Myrna's personal residence (adjusted basis of $100,000) was condemned,and she received a condemnation award of $80,000.Myrna used the condemnation proceeds to purchase a new residence for $90,000.What is her recognized gain or loss and her basis in the new residence?

Carlos,who is single,sells his personal residence on November 5,2017,for $400,000.His adjusted basis was $125,000.He pays realtor's commissions of $20,000.He 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 6,2018,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.

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000) .Of the insurance proceeds of $360,000 she receives,Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit.She received only $360,000 because of a co-insurance clause in her insurance policy.What is Joyce's recognized gain or loss?

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.

If there is an involuntary conversion (i.e.,casualty,theft,or condemnation) of the taxpayer's principal residence,the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.

Marilyn owns 100% of the stock of Lilac,Inc.,with an adjusted basis of $45,000.She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000. a.What is Marilyn's dividend income? b.What is Marilyn's recognized gain or loss? c.What is Marilyn's adjusted basis for her stock after the distribution?

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

Latisha owns a warehouse with an adjusted basis of $200,000.She exchanges it for a strip mall building worth $225,000.Which of the following statements is correct?

Louis owns a condominium in New Orleans which has been his principal residence for 12 years.He wants to be near Lake Ponchartrain since he enjoys water activities.Therefore,he sells the condominium.His original intent was to purchase a house in New Orleans near the lake.However,the cost of such properties far exceeded his sales proceeds.He was able to purchase a house on the lake in Covington,which is located across the causeway.He invested all of his sales proceeds in the Covington house.After two months of commuting over an hour to and from work each day,he decides to rent an efficiency apartment in New Orleans near his office.He spends the weekends and vacations at his home in Covington. a.Does Louis qualify for exclusion of gain under § 121? b.Does his Covington house qualify as his principal residence?

Katrina,age 58,rented (as a tenant) the house that was her principal residence from January 1,2017 through December 31,2018.She purchased the house on January 1,2019,for $150,000 and continued to occupy it through June 30,2020.She leased it to a tenant from July 1,2020,through December 31,2021.On January 1,2021,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.

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?

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

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?