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

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?

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.

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

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange, the taxpayer acquires substantially identical stock.

In 2014, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2018. At this time, the fair market value of the car has declined to $10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with out-of-pocket costs of $5,000. She later sells the car for $30,000. What is Julia's recognized gain or loss on the sale of the car?

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3, 2018. The adjusted basis is $800,000. The insurance company offers a settlement of $700,000. After protracted negotiations, Edith receives $825,000 on June 9, 2019. Edith is a fiscal year taxpayer whose tax year ends on June 30th. What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

Faith inherits an undivided interest in a parcel of land from her father on February 15, 2018. Her father purchased the land on August 25, 1991 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. a. What is Faith's adjusted basis for her one-tenth undivided interest in the land? b. What is her holding period for the land?

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid). The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

Annette purchased stock on March 1, 2018, for $200,000. At December 31, 2018, it was worth $210,000. She also purchased a bond on September 1, 2018, for $20,000. At year end, it was worth $15,000. Determine Annette's realized and recognized gain or loss.

The holding period of property acquired by gift may begin on:

Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

A realized gain on an indirect (conversion into money) involuntary conversion of business property can be postponed, but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

Which of the following statements is correct?

Wyatt sells his principal residence in December 2018 and qualifies for the § 121 exclusion. He sells another principal residence in November 2019. Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

In a nontaxable exchange, the replacement property is assigned a carryover basis if there is a realized gain, but receives a new basis if there is a realized loss.

Latisha owns a warehouse with an adjusted basis of $200,000. She exchanges it for a strip mall building worth $225,000. Which of the following statements is correct?

Tara owns common stock in Taupe, Inc., with an adjusted basis of $250,000. She receives a preferred stock dividend which is nontaxable. a. What effect does the preferred stock dividend have on Tara's adjusted basis of the common stock? b. How is the basis of the preferred stock calculated? c. What effect does the preferred stock dividend have on Tara's gross income?

When boot in the form of cash is given in a like-kind exchange, recognized gain is the greater of the boot or the realized gain.

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have received boot in the transaction.