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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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Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

A) True
B) False

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Question 42

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

A) True
B) False

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Question 43

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Milt's building which houses his retail sporting goods store is destroyed by a flood. Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood. Both Milt and Sandra receive insurance proceeds that result in a realized gain. Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Gil's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane. Due to a 30% co-insurance clause, Gil receives insurance proceeds of $192,500 two months after the date of the loss. One month later, Gil uses the insurance proceeds to purchase a new office building for $275,000. His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Evelyn's office building is destroyed by fire on July 12, 2016. The adjusted basis is $315,000. She receives insurance proceeds of $350,000 on August 31, 2016. 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.

Capital recoveries include:

In October 2016, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange. Ben bought his real estate in 2006 while Jerry purchased his in 2009. In addition to the realty, Ben receives Pearl, Inc. stock worth $10,000 from Jerry. Ben's realized gain is $30,000. On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?

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.

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made. The amount of the amortized premium is treated as an interest deduction.

Tobin inherited 100 acres of land on the death of his father in 2016. A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death) . The father had originally acquired the land in 1973 for $19,000 and prior to his death had made permanent improvements of $6,000. What is Tobin's basis in the land?

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).

Morgan owned a convertible that he had purchased two years ago for $46,000 and which he transfers to his sole proprietorship. How is the sole proprietorship's basis for the car calculated? What additional information does Morgan need?

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?

Define fair market value as it relates to property transactions.

Mary sells her personal use automobile for $20,000. She purchased the car two years ago for $17,000. What is Mary's recognized gain or loss? It increased in value due to its excellent mileage, yet safe design.

Nancy and Tonya exchanged assets. Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000. The house has a mortgage of $200,000 which is assumed by Tonya. Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000. What is Tonya's realized and recognized gain?

Gift property (disregarding any adjustment for gift tax paid by the donor) :

Lucinda, a calendar year taxpayer, owned a rental property with an adjusted basis of $312,000 in a major coastal city. Her property was condemned by the city government on October 12, 2016. In order to build a convention center, Lucinda eventually received qualified replacement property from the city government on March 9, 2017. This new property has a fair market value of $410,000. a.​What is Lucinda's recognized gain or loss on the condemnation? b.What is her adjusted basis for the new property? c.​If, instead of receiving qualifying replacement property, Lucinda was paid $410,000, what is the latest date that she can acquire qualifying replacement 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.