Question 1

Beth sells investment land (adjusted basis of $225,000) that she has owned for 6 years to her husband, Richard, for its fair market value of $195,000.

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Question 2

Misty owns stock in Violet, Inc., for which her adjusted basis is $128,000.She receives a cash distribution of $50,000 from Violet.

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Question 3

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

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Question 4

Inez's adjusted basis for 9,000 shares of Cardinal, Inc.common stock is $900,000.During the year, she receives a 5% stock dividend that is a nontaxable stock dividend.

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Question 5

Describe the relationship between the recovery of capital doctrine and the realized and recognized gain and loss concepts.

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Question 6

Patty's factory building, which has an adjusted basis of $325,000, is destroyed by fire on March 5, 2012.Insurance proceeds of $475,000 are received on May 1, 2012.She has a new factory building constructed for $450,000, which she occupies on October 1, 2012.Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

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Question 7

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

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Question 8

Why is it generally undesirable to pass property by death when its fair market value is less than basis?

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Question 9

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?

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Question 10

For the following exchanges, indicate which qualify as like-kind property.

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Question 11

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

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Question 12

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.

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Question 13

Renee purchases taxable bonds with a face value of $200,000 for $212,000.The annual interest paid on the bonds is $10,000.Assume Renee elects to amortize the bond premium.The total premium amortization for the first year is $1,600.

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Question 14

Discuss the application of holding period rules to property acquired by gift and inheritance.

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Question 15

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.

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Question 16

Hilary receives $10,000 for a 13-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.

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Question 17

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?

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Question 18

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?

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Question 19

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.

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Question 20

Don, who is single, sells his personal residence on October 5, 2012, for $380,000.His adjusted basis was $102,000.He pays realtor's commissions of $18,000.He owned and occupied the residence for 14 years.Having decided that he no longer wants the burdens of home ownership, he invests the sales proceeds in a mutual fund and enters into a 1-year lease on an apartment.The detriments of renting, including a crying child next door, cause Don to rethink his decision.Therefore, he purchases another residence on November 6, 2013, for $188,000.Is Don eligible for exclusion of gain treatment under § 121 (exclusion of gain on sale of principal residence)? Calculate Don's recognized gain and his basis for the new residence.

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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2