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

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Question 41

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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).

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B) False

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Question 42

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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.

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B) False

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Question 43

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What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's 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.

If the buyer assumes the seller's liability on the property acquired,the seller's amount realized is decreased by the amount of the liability assumed.

A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000)from personal use to business use.Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis)from his mother as a gift.Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.

In computing the amount realized when the fair market value of the property received cannot be determined,the fair market value of the property surrendered may be used.

Albert purchased a tract of land for $140,000 in 2012 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000.Highway engineers surveyed the property and indicated that he would probably get $180,000.The highway project was abandoned in 2015 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2015?

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

The basis of boot received in a like-kind exchange is its fair market value,unless the realized gain is a smaller amount.

Which of the following is correct?

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

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence)apply.

If a taxpayer purchases taxable bonds at a premium,the amortization of the premium is elective.However,if a taxpayer purchases tax-exempt bonds at a premium,the amortization of the premium is mandatory.Explain this difference in the treatment.

Sidney,a calendar year taxpayer,owns a building (adjusted basis $450,000)in Columbus,OH,in which he conducts his retail computer sales business.The building is destroyed by fire on December 12,2015,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 2,2016.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).

Over the past 20 years,Alfred has purchased 380 shares of Green,Inc. ,common stock.His first purchase was in 1994 when he acquired 30 shares for $20 a share.In 1999,Alfred bought 150 shares at $10 a share.In 2014,Alfred acquired 200 shares at $50 a share.Alfred intends to sell 125 shares at $60 per share in the current year (2015) .If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold,what is his recognized gain?

The holding period for property acquired by gift is automatically long term.