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

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Monica sells a parcel of land to her son, Elbert, for $90,000. Monica's adjusted basis is $100,000. Three years later, Elbert gives the land to his fiancée, Karen. At that date, the land is worth $104,000. No gift tax is paid. Since Elbert is going to be stationed in the U.S. Army in Germany for 3 years, they do not plan on being married until his tour is completed. Six months after receiving the land, Karen sells it for $110,000. At the same time, Karen sends Elbert a "Dear John" email. Calculate Karen's realized and recognized gain or 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?

A loss from the sale of a personal use asset that would be disallowed cannot be recognized even if the taxpayer converts the asset to business use prior to its sale.

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock, the taxpayer is required to allocate a portion of the stock basis to the stock rights.

Marge purchases the Kentwood Krackers, a AAA level baseball team, for $1.5 million. The appraised values of the identified assets are as follows: The Krackers have won the pennant for the past two years. Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

Albert purchased a tract of land for $140,000 in 2015 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2018 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2018?

In computing the amount realized when the fair market value of the property received cannot be determined, the fair market value of the property surrendered may be used.

Patty's factory building, which has an adjusted basis of $475,000, is destroyed by fire on April 8, 2018. Insurance proceeds of $500,000 are received on June 1, 2018. She has a new factory building constructed for $490,000, which she occupies on October 1, 2018. Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

For disallowed losses on related-party transactions, who has the right of offset?

Hubert purchases Fran's jewelry store for $950,000. The identifiable assets of the business are as follows: Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete. How should Hubert allocate the $950,000 purchase price to the assets?

What kinds of property do not qualify under the like-kind provisions?

Under the taxpayer-use test for a § 1033 involuntary conversion, the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

Louis owns a condominium in New Orleans which has been his principal residence for 12 years. He wants to be near Lake Ponchartrain since he enjoys water activities. Therefore, he sells the condominium. His original intent was to purchase a house in New Orleans near the lake. However, the cost of such properties far exceeded his sales proceeds. He was able to purchase a house on the lake in Covington, which is located across the causeway. He invested all of his sales proceeds in the Covington house. After two months of commuting over an hour to and from work each day, he decides to rent an efficiency apartment in New Orleans near his office. He spends the weekends and vacations at his home in Covington. a. Does Louis qualify for exclusion of gain under § 121? b. Does his Covington house qualify as his principal residence?

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

Nancy gives her niece a crane to use in her business with a fair market value of $61,000 and a basis in Nancy's hands of $80,000. No gift tax was paid. What is the niece's basis for depreciation (cost recovery)?

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.