Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

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

On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value.On June 21, Ned sold the stock to a friend for $26,000.

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?

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

a. Orange Corporation exchanges a warehouse located in Michigan (adjusted basis of $560,000) for a warehouse located in Ohio (adjusted basis of $450,000; fair market value of $525,000).Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange, and the basis of the warehouse acquired.

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

What kinds of property do not qualify under the like-kind provisions?

Mitchell owned an SUV that he had purchased two years ago for $48,000 and which he transfers to his sole proprietorship.How is the sole proprietorship's basis for the SUV calculated? What additional information does Mitchell need?

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, 2012.In order to build a convention center, Lucinda eventually received qualified replacement property from the city government on March 9, 2013.This new property has a fair market value of $410,000.

For each of the following involuntary conversions, determine if the property qualifies as replacement property.

Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a nephew.

Bill is considering two options for selling land for which he has an adjusted basis of $80,000 and on which there is a mortgage of $75,000.Under the first option, Bill will sell the land for $170,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete.Under the second option, Bill will sell the land for $95,000 and the buyer will assume the mortgage.Calculate Bill's recognized gain under both options.

Edward, age 52, leased a house for one year in Memphis with an option to buy as his personal residence.At the end of the lease, he purchased the house.He lived there for an additional 26 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months, he rented the Memphis house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period, Edward's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Edward's house in Memphis purchased it at the end of the 24-month extended lease period.Is Edward eligible to elect exclusion treatment under § 121?

Faith inherits an undivided interest in a parcel of land from her father on February 15, 2012. Her father purchased the land on August 25, 1985 and his basis for the land was $325,000. The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later. The executor elects the alternate valuation date. Faith has nine brothers and sisters and each inherited a one-tenth interest.

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

On September 18, 2012, Jerry received land and a building from Ted as a gift. Ted had purchased the land and building on March 5, 2009, and his adjusted basis and the fair market value at the date of the gift were as follows: Ted paid gift tax on the transfer to Jerry of $96,000.

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

Use the following data to determine the sales price of Etta's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion.

Define an involuntary conversion.

Sam and Cheryl, husband and wife, own property jointly.The property has an adjusted basis of $400,000 and a fair market value of $500,000.