Exam 13: A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Reggie owns all the stock of Amethyst, Inc.(adjusted basis of $80,000).If he receives a distribution from Amethyst of $70,000 and corporate earnings and profits are $18,000, Reggie has a capital gain of $8,000 and an adjusted basis for his Amethyst stock of $0.

If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Owen and Polly have been married for three years.Owen sells investment property to Polly for a realized loss of $140,000.Owen's loss of $140,000 is disallowed and Polly's basis for the property she purchased is her cost.

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000). Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce's recognized gain or loss?

In a nontaxable exchange, recognition is postponed.In a tax-free transaction, nonrecognition is permanent.

Which of the following statements is correct with respect to qualified replacement property in a § 1033 involuntary conversion?

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).

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock.His first purchase was in 1991 when he acquired 30 shares for $20 a share.In 1996, Alfred bought 150 shares at $10 a share.In 2011, Alfred acquired 200 shares at $50 a share.Alfred intends to sell 125 shares at $60 per share in the current year.If Alfred's objective is to minimize gain, what is his recognized gain?

Which of the following is correct?

Iva owns Mauve, Inc.stock (adjusted basis of $40,000) which she sells to Joshua, her brother, for its fair market value of $32,000.Fifteen months later, he sells it to Faye, a friend, for its fair market value of $39,000.Determine Iva's recognized loss, Joshua's recognized gain or loss, and Faye's adjusted basis for the stock. Iva's recognized loss Joshua's recognized gain or loss Faye's basis

Lily exchanges a building she uses in her rental business for a building owned by Kendall, her brother, which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Wyatt sells his principal residence in December 2012 and qualifies for the § 121 exclusion.He sells another principal residence in October 2013.Under certain circumstances Wyatt can qualify for the § 121 exclusion on the sale of the second residence.

The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000, and the fair market value is $750,000.What is Lisa's recognized gain or loss?

If a husband inherits his deceased wife's share of jointly owned property in a common law state, both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

Virginia, who is single, sells her principal residence (adjusted basis of $150,000) on January 5, 2012, for $380,000.She has owned and occupied it as her principal residence for 20 years.She incurs a realtor's commission of $22,000 and legal fees of $5,000.On January 3, 2012, Virginia purchases a townhouse for $300,000 and uses it as her principal residence.Because it was not near a convenience store, she sells the townhouse on December 20, 2012, for $330,000.She incurs a realtor's commission of $18,000 and legal fees of $4,000.She buys a house on December 1, 2012, for $250,000 and uses it as her principal residence.What is Virginia's recognized gain on the sale of each house and her adjusted basis for the house purchased on December 1, 2012?

Taxpayer owns a home in Atlanta.His company transfers him to Chicago on January 2, 2012, and he sells the Atlanta house in early February.He purchases a residence in Chicago on February 3, 2012.On December 15, 2012, taxpayer's company transfers him to Los Angeles.In January 2013, he sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period, § 121 treatment does not apply to the sale of the second home.

The adjusted basis of property that is stolen is reduced by the amount of insurance proceeds received and by any recognized loss.

In October 2012, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2002 while Jerry purchased his in 2005.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?

Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?