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

An involuntary conversion results from the destruction (complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

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.

Pedro borrowed $250,000 to purchase a machine costing $300,000. 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 $145,000 and $18,000. Pedro sells the machine subject to the two liabilities for $45,000. What is his realized gain or loss?

Liz, age 55, sells her principal residence for $600,000. She purchased it twenty-two years ago for $175,000. Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000. Liz's objective is to minimize the taxes she must pay associated with the sale. Calculate her recognized gain.

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

Janice bought her house in 2009 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, 2018. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Don buys the house for $500,000 in cash and assumes her mortgage of $194,000. What is Janice's adjusted basis at the date of the sale and the amount realized?

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?

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes. When the SUV is worth $30,000, he contributes it to his business. The gain basis is $45,000, the loss basis is $30,000, and the basis for cost recovery is $45,000.

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2014. On January 1, 2018, he sells 125 shares for $5,000. On January 22, 2018, he purchases 135 shares of Eagle Corporation stock for $6,075. When does Andrew's holding period begin for the 135 shares?

Nigel purchased a blending machine for $125,000 for use in his business. As to the machine, he has deducted MACRS cost recovery of $31,024, maintenance costs of $5,200, and repair costs of $4,000. Calculate Nigel's adjusted basis for the machine.

Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2018, he sells 400 shares for $5,200, while on May 5, 2018, he purchases 200 shares for $3,600. a. What is Mitch's recognized gain or loss resulting from these transactions? b. What is Mitch's basis for the stock acquired on May 5, 2018? c. Could Mitch have obtained different tax consequences in a. and b. if he had sold the 400 shares on December 27, 2018, and purchased the 200 shares on January 5, 2019?

If boot is received in a § 1031 like-kind exchange and gain is recognized, which formula correctly calculates the basis for the like-kind property received?

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30, 2018. Sam is a calendar year taxpayer. He receives a condemnation award of $875,000 on March 1, 2019. He builds a new office building at a cost of $845,000 which is completed and paid for on December 31, 2021. What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?

Hilary receives $10,000 for a 15-foot wide utility easement along one of the boundaries to her property. The easement provides that no structure can be built on that portion of the property. Her adjusted basis for the property is $200,000 and the easement covers 15% of the total acreage. Determine the effect of the $10,000 payment on Hilary's gross income and her basis for the property.

Which of the following statements is correct?

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

Parker bought a brand new Ferrari on January 1, 2018, for $125,000. Parker was fatally injured in an auto accident on June 23, 2018, when the fair market value of the car was $105,000. Parker was driving a loaner car from the Ferrari dealership while his car was being serviced. In his will, Parker left the Ferrari to his best friend, Ryan. Ryan's holding period for the Ferrari begins on January 1, 2018.

Nontaxable stock dividends result in:

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2018, the date of the decedent's death. The executor distributes the land to Kelly on November 12, 2018, at which time the fair market value is $49,000. The fair market value on February 4, 2019, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2019, for $48,000. What is her recognized gain or loss?