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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

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Question 21

True/False

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The basis of inherited property usually is its fair market value on the date of the decedent's death.

A) True
B) False

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Question 22

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Which of the following is correct?

A) Realized gains are always recognized and realized losses are never recognized.
B) Realized gains and realized losses on the sale of personal use assets are not recognized.
C) Realized gains and realized losses on the sale of personal use assets are recognized.
D) Only a.and b.are correct.
E) None of the above.

F) None of the above
G) C) and D)

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Question 23

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If there is an involuntary conversion (i.e., casualty, theft, or condemnation) of the taxpayer's principal residence, the realized gain may be postponed as a § 1033 involuntary conversion or excluded as a § 121 sale of a principal residence.

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

Ben sells stock (adjusted basis of $25,000) to his son, Ray, for its fair market value of $15,000.Ray gives the stock to his daughter, Trish, who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

In a nontaxable exchange, the replacement property is assigned a carryover basis.

The adjusted basis of property that is stolen is reduced by the amount of insurance proceeds received and by any recognized loss.

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

Matt, who is single, sells his principal residence, which he has owned and occupied for 5 years, for $435,000. The adjusted basis is $140,000 and the selling expenses are $20,000. Three days after the sale he purchases another residence for $385,000. Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Which of the following types of transactions qualify for nonrecognition treatment?

Vanessa's personal residence was condemned, and she received a condemnation award of $475,000.Vanessa had owned and occupied the residence for 15 years.The adjusted basis in the residence at the time of condemnation was $200,000.Vanessa used part of the condemnation proceeds to purchase a new residence for $210,000.What is Vanessa's recognized gain or loss and her basis in the new residence?

If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

Pedro borrowed $125,000 to purchase a machine costing $150,000.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 $115,000 and $21,000.Pedro sells the machine subject to the two liabilities for $27,000.What is his realized gain or loss?

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Steve purchased his home for $500,000.As a sole proprietor, he operates a certified public accounting practice in his home.For this business, he uses one room exclusively and regularly as a home office.In Year 1, $3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2, Steve sustained losses in his business; therefore, no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense, his depreciation expense would have been $3,175.What is the adjusted basis in the home?

Which of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Virginia, who is single, sells her principal residence (adjusted basis of $150,000) on January 5, 2012, for $380,000.She has owned and occupied it as her principal residence for 20 years.She incurs a realtor's commission of $22,000 and legal fees of $5,000.On January 3, 2012, Virginia purchases a townhouse for $300,000 and uses it as her principal residence.Because it was not near a convenience store, she sells the townhouse on December 20, 2012, for $330,000.She incurs a realtor's commission of $18,000 and legal fees of $4,000.She buys a house on December 1, 2012, for $250,000 and uses it as her principal residence.What is Virginia's recognized gain on the sale of each house and her adjusted basis for the house purchased on December 1, 2012?

As part of the divorce agreement, Hugh transfers his ownership interest in their personal residence to Monica.The house had been jointly owned by Hugh and Monica and the adjusted basis is $590,000.At the time of the transfer to Monica, the fair market value is $900,000.What is the recognized gain to Hugh, and what is Monica's basis for the house?