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Exam 7: Basis, Gain and Loss, and Nontaxable Exchanges

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Question 81

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Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

A) True
B) False

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Question 82

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

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Adjusted basis is determined a...

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Question 83

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Abby sells real property for $300,000.The buyer pays $5,000 in property taxes that had accrued during the year while the property was still legally owned by Abby.In addition, Abby pays $15,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Abby realize (the amount realized) from the sale of her property?

If boot is received in a § 1031 like-kind exchange, the recognized gain cannot exceed the realized gain.

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

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.

Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000.If the property is going to be given to Stuart's nephew, Alex, it is preferable for the transfer to be by inheritance rather than by gift.

Evelyn's office building is destroyed by fire on July 12, 2017.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31, 2017.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion) postponement treatment.

Dennis, a calendar year taxpayer, owns a warehouse (adjusted basis of $190,000) which is destroyed by a tornado in October 2017.He receives insurance proceeds of $250,000 in January 2018.If before 2021, Dennis replaces the warehouse with another warehouse costing at least $250,000, he can elect to postpone the recognition of any realized gain.

In addition to other gifts, Megan made a gift of stock to Jeri in 1976.Megan had purchased the stock in 1974 for $7,500.At the time of the gift, the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1976, what is Jeri's gain basis for the stock?

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

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

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

Maurice sells his personal use automobile at a realized loss.Under what circumstances can Maurice deduct the loss? What if the personal use asset was sold at a realized gain?

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

Matt, who is single, sells his principal residence, which he has owned and occupied for 5 years, for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Capital recoveries include:

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion) and the § 1033 (involuntary conversion postponement of gain) provisions.

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?

If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.