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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

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Question 41

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During 2012, Zeke and Alice, a married couple, decided to sell their residence, which had a basis of $200,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers, they had the inside painted in April at a cost of $5,000 and paid for the work immediately.They sold the house in May for $800,000.Broker's commissions and other selling expenses amounted to $50,000.They purchased a new residence in July for $400,000.What is the recognized gain and the adjusted basis of the new residence?

A) $45,000 and $400,000.
B) $50,000 and $400,000.
C) $100,000 and $600,000.
D) $550,000 and $800,000.
E) None of the above.

F) C) and D)
G) A) and D)

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Question 42

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Carl sells his principal residence, which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence) ?

A) $0 and $380,000.
B) $0 and $408,000.
C) $28,000 and $352,000.
D) $28,000 and $380,000.
E) None of the above.

F) B) and C)
G) C) and D)

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Question 43

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Lily exchanges a building she uses in her rental business for a building owned by Kendall, her brother, which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

A realized gain on an indirect (conversion into money) involuntary conversion of business property can be postponed, but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

If the alternate valuation date is elected by the executor in 2012, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Agnes, a calendar year taxpayer, lists her principal residence with a realtor on January 7, 2012, enters into a contract to sell on March 5, 2012, and sells (i.e., the closing date) the residence on May 15, 2012. The realized gain on the sale is $240,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the taxpayer as the principal residence for at least two years during the prior five-year period?

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

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the recipient's stock basis is treated as an ordinary gain.

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).

Which of the following types of exchanges of insurance contracts qualify for nonrecognition treatment under § 1035?

Elvis owns all of the stock of Shadow Corporation.The accumulated earnings and profits of Shadow Corporation at the end of the year are a deficit of $12,000.The current earnings and profits are $25,000.Elvis' basis for his stock is $290,000.He receives a distribution of $340,000 on the last day of the tax year.How much dividend income and/or capital gain should Elvis report?

Al owns stock with an adjusted basis of $100,000 and a fair market value of $300,000.He gives the stock to Jane on July 1, 2011.When Jane dies, the fair market value of the stock is $900,000.Jane's will provides that Al is to receive the stock.Which of the following is false?

Melvin receives stock as a gift from his uncle.No gift tax is paid.The adjusted basis of the stock is $30,000 and the fair market value is $38,000.Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash.What is his recognized gain and the basis for the bonds?

An exchange of business or investment property for like-kind property with a § 267 related party cannot qualify as a § 1031 like-kind exchange.

Parker bought a brand new Ferrari on January 1, 2012, for $125,000. Parker was fatally injured in an auto accident on June 23, 2012, when the fair market value of the car was $105,000. Parker was driving a loaner car from the Ferrari dealership while his car was being serviced. In his will, Parker left the Ferrari to his best friend, Ryan. Ryan's holding period for the Ferrari begins on June 23, 2012.

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold, he should use either a weighted average approach or a LIFO approach.

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2012, the date of the decedent's death.The executor distributes the land to Kelly on November 12, 2012, at which time the fair market value is $49,000.The fair market value on February 4, 2013, is $45,000.In filing the estate tax return, the executor elects the alternate valuation date.Kelly sells the land on June 10, 2013, for $48,000.What is her recognized gain or loss?

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

Gabe's office building (adjusted basis of $430,000; fair market value of $500,000) is destroyed by a hurricane.Due to a 20% co-insurance clause, Gabe receives insurance proceeds of only $400,000.If Gabe purchases an office building for $500,000 one month later, its adjusted basis is $530,000 ($500,000 cost + $30,000 postponed loss).

Maud exchanges a rental house at the beach with an adjusted basis of $475,000 and a fair market value of $460,000 for a rental house at the mountains with a fair market value of $400,000 and cash of $60,000.What is the recognized gain or loss?