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

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain or recognized loss.

If property that has been converted from personal use to business use has appreciated in value, its basis for gain will be the same as the basis for loss.

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over one year.

During 2012, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $225,000.They had owned and occupied the residence for 16 years.To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $10,000 and paid for the work immediately.They sold the house in May for $795,000.Broker's commissions and other selling expenses amounted to $45,000.Since they both are age 68, they decide to rent an apartment. They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

If the alternate valuation date is elected by the executor in 2012, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Pedro borrowed $125,000 to purchase a machine costing $150,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $115,000 and $21,000.Pedro sells the machine subject to the two liabilities for $27,000.What is his realized gain or loss?

Molly exchanges a small machine (adjusted basis of $85,000; fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000; fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange.What is Molly's recognized gain or loss?

Since wash sales do not apply to gains, it may be desirable to engage in this type of transaction before the end of the tax year.

Karla owns 200 acres of farm land is southeastern Virginia.Her adjusted basis for the land is $240,000 and there is a $200,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark, New Jersey.The building has a fair market value of $450,000.Chris assumes Karla's mortgage on the land.What is the amount of Karla's recognized gain or loss on the exchange?

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).

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2005.On January 1, 2012, he sells 125 shares for $5,000.On January 22, 2012, he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

An exchange of business or investment property for like-kind property with a § 267 related party cannot qualify as a § 1031 like-kind exchange.

Latisha owns a warehouse with an adjusted basis of $112,000.She exchanges it for a strip mall building worth $150,000.Which of the following statements is correct?

Jamie bought her house in 2007 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, 2012. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Sammy buys the house for $500,000 in cash, assumes her mortgage of $194,000, and pays property taxes of $4,200 for the entire year on December 1, 2012. What is Jamie's adjusted basis at the date of the sale and the amount realized?

Shontelle received a gift of income-producing property with an adjusted basis of $41,000 to the donor and fair market value of $38,000 on the date of gift.Gift tax of $6,000 was paid by the donor.Shontelle subsequently sold the property for $36,000.What is the recognized gain or loss?

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

On October 1, Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000).The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

Samantha gives her son, Steve, stock (basis of $72,000; fair market value of $68,000) and no gift tax results. When Steve subsequently sells the stock for $69,000, his recognized gain or loss is: