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Exam 7: Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

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Question 81

Multiple Choice

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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?

A) $1,350,000.
B) $1,378,000.
C) $1,385,000.
D) $1,413,000.
E) None of the above.

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

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Question 82

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In a nontaxable exchange,the replacement property is assigned a carryover basis if there is a realized gain,but receives a new basis if there is a realized loss.

A) True
B) False

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Question 83

Multiple Choice

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During 2013,Ted and Judy,a married couple,decided to sell their residence,which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.Since they both are age 68,they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

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.

Dena owns 500 acres of farm land in southeastern Maryland.Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark,New Jersey.The building has a fair market value of $900,000.Chris assumes Dena's mortgage on the land.What is the amount of Dena's recognized gain or loss on the exchange?

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130,she sells the house for $120,000.What is her recognized gain or loss?

Sidney,a calendar year taxpayer,owns a building in Columbus,OH,in which he conducts his retail computer sales business.The building is destroyed by fire on December 12,2013,and two weeks later he receives insurance proceeds of $600,000.Due to family ties,Sidney decides to move to Columbia,SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2014.By electing § 1033,Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

Wyatt sells his principal residence in December 2013 and qualifies for the § 121 exclusion.He sells another principal residence in November 2014.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

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

If the alternate valuation date is elected by the executor of the estate,the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000).On April 27,2013,he sells 400 shares for $5,200,while on May 5,2013,he purchases 200 shares for $3,600.

Nontaxable stock dividends result in:

Wade is a salesman for a real estate development company.Because he is the "salesperson of the year," he is permitted to purchase a lot from the developer for $90,000.The fair market value of the lot is $150,000 and the developer's adjusted basis is $100,000.Wade must recognize a gain of $10,000 ($100,000 developer's adjusted basis - $90,000 cost to Wade),and his adjusted basis for the lot is $100,000 ($90,000 cost + $10,000 recognized gain).

Jamie bought her house in 2008 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 1,2013.Her realtor charged $34,700 in commissions.Prior to listing the house with the realtor,she spent $300 advertising in the local newspaper.Sammy buys the house for $500,000 in cash,assumes her mortgage of $194,000,and pays property taxes of $4,200 for the entire year on December 1,2013.What is Jamie's adjusted basis at the date of the sale and the amount realized?

In 2013,Felix gives 10,000 shares of stock to his daughter,Monica.The stock was acquired in 2004 for $200,000,and at the time of the gift,it had a fair market value of $600,000.Felix paid a gift tax of $240,000.[Assume the gift tax exclusion has been used by Felix-see Chapter 1.] a. Does the receipt of the stock result in gross income to Monica? b. What is Monica's basis in the stock?

What effect does a deductible casualty loss have on the adjusted basis of property?

Marsha transfers her personal use automobile to her business (a sole proprietorship).The car's adjusted basis is $30,000 and the fair market value is $16,000.No cost recovery had been deducted by Marsha,since she held the car for personal use.Determine the adjusted basis of the car to Marsha's sole proprietorship including the basis for cost recovery.

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 1,2012.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?

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.