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

Melissa, age 58, marries Matt, age 50, on June 1, 2019. On August 1, 2019, Melissa decides to sell her principal residence, which she has owned and occupied for the past 30 years. Matt has never owned a house. However, while he was married to Kelly who died 6 months prior to his marriage to Melissa, Kelly used the § 121 election on the sale of her residence in January 2017 to reduce her realized gain from $123,000 to $0. Kelly used the sales proceeds to pay off Matt's outstanding debts. Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Matt if they file a joint return?

Morgan owned a convertible that he 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?

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Tara owns common stock in Taupe, Inc., with an adjusted basis of $250,000. She receives a preferred stock dividend which is nontaxable. a. What effect does the preferred stock dividend have on Tara's adjusted basis of the common stock? b. How is the basis of the preferred stock calculated? c. What effect does the preferred stock dividend have on Tara's gross income?

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.

Nontaxable stock dividends result in:

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share. Two years later, he receives a 5% common stock dividend. At that time, the common stock of Purple Corporation had a fair market value of $12.50 per share. What is the basis of the Purple stock, the per share basis, and gain recognized upon receipt of the common stock dividend?

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.

If a taxpayer reinvests the net proceeds (amount received minus related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period, it is possible to defer the recognition of the realized gain.

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

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).

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

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 for $380,000 one month prior to the sale. 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)?

What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?

Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000. In addition, Pam receives $100,000 in cash. What is the recognized gain or loss and the basis of the investment land?

Wyatt sells his principal residence in December 2019 and qualifies for the § 121 exclusion. He sells another principal residence in November 2020. Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

Danielle, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2019, enters into a contract to sell on July 12, 2019, and sells (i.e., the closing date) the residence on August 1, 2019. The realized gain on the sale is $225,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the Danielle as the principal residence for at least two years during the prior five-year period?

Fran was transferred from Phoenix to Atlanta. She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000. Fran had owned and lived in the Phoenix residence for six years. What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

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

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).