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

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.

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?

Discuss the relationship between the postponement of realized gain under § 1031 (like-kind exchanges) and the adjusted basis and holding period for the replacement property.

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?

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).

Jan purchases taxable bonds with a face value of $250,000 for $265,000.The annual interest paid on the bonds is $10,000.Assume Jan elects to amortize the bond premium.The total premium amortization for the first year is $1,600. a.What is Jan's interest income for the first year? b.What is Jan's interest deduction for the first year? c.What is Jan's adjusted basis for the bonds at the end of the first year?

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. a.Discuss the rules for the calculation of the adjusted basis of the property to Sam if he inherits his wife's share of the property and Sam and Cheryl live in a community property state. b.If they live in a common law state?

Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?

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

Sandra's automobile,which is used exclusively in her trade or business,was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

Capital recoveries include:

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Lenny and Beverly have been married and living together in Lenny's home for 6 years.He lived in the home alone for 20 years prior to their marriage.They sell the home,which has an adjusted basis of $120,000,for $700,000.Lenny and Beverly plan to use the § 121 exclusion (exclusion of gain on sale of principal residence).In Beverly's prior marriage to Dan,Dan sold his principal residence and used the § 121 exclusion.Beverly and Dan filed joint returns during their seven years of marriage.They had lived in Dan's house throughout their marriage.Dan's sale had occurred one year prior to the divorce.Lenny and Beverly purchase a replacement residence for $650,000 one month after the sale.What is the recognized gain and basis for the new home?

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?

For the following exchanges,indicate which qualify as like-kind property. a.Inventory of a sporting goods store in Charleston for inventory of an appliance store in Savannah. b.Inventory of a ladies dress shop in Cleveland for inventory of a ladies dress shop in Richmond. c.Investment land in Virginia Beach for office building in Williamsburg. d.Used automobile used in a business for a new automobile to be used in the business. e.Investment land in Paris for investment land in San Francisco. f.Shares of Texaco stock for shares of Exxon Mobil stock.

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

Lily exchanges a building she uses in her rental business for a building owned by Kendall,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?

Maud exchanges a rental house at the beach with an adjusted basis of $225,000 and a fair market value of $200,000 for a rental house at the mountains with a fair market value of $180,000 and cash of $20,000.What is the recognized gain or loss?

Ollie owns a personal use car for which he originally paid $48,000.He trades the car in on a sports utility vehicle (SUV) paying the automobile dealer cash of $30,000.If the negotiated price of the SUV is $49,000,what is Ollie's recognized gain or loss and his adjusted basis for the SUV?