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Exam 7: Basis, Gain and Loss, and Nontaxable Exchanges

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Question 51

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Janice bought her house in 2008 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, 2017.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?

A) $370,000 adjusted basis; $661,400 amount realized.
B) $370,000 adjusted basis; $659,000 amount realized.
C) $370,000 adjusted basis; $665,200 amount realized.
D) $325,000 adjusted basis; $663,200 amount realized.
E) $325,000 adjusted basis; $694,000 amount realized.

F) A) and E)
G) B) and D)

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Question 52

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A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

A) True
B) False

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Question 53

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Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

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.

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.

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

During 2017, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.Since they both are age 68, they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

After 5 years of marriage, Dave and Janet decided to get a divorce.As part of the divorce settlement, Janet transfers to Dave the house she purchased prior to their marriage.Janet's adjusted basis for the house is $230,000 and the fair market value is $410,000 on the date of the transfer.What are the tax consequences to Janet and to Dave as a result of the transfer?

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.

Discuss the treatment of realized gains from involuntary conversions.

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?

Tobin inherited 100 acres of land on the death of his father in 2017.A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death) .The father had originally acquired the land in 1974 for $19,000 and prior to his death had made permanent improvements of $6,000.What is Tobin's basis in the land?

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

Marge purchases the Kentwood Krackers, a AAA level baseball team, for $1.5 million.The appraised values of the identified assets are as follows: Prepaid season tickets............$150,000 Stadium lease.........................400,000 Player contracts.....................500,000 Equipment.............................100,000 The Krackers have won the pennant for the past two years.Determine Marge's adjusted basis for the assets of the Kentwood Krackers.

In a casualty or theft, the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

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

Peggy uses a delivery van in her business.The adjusted basis is $39,000, and the fair market value is $34,000.The delivery van is stolen and Peggy receives insurance proceeds of $34,000.Determine Peggy's realized and recognized gain or loss.

If the buyer assumes the seller's liability on the property acquired, the seller's amount realized is decreased by the amount of the liability assumed.

If a taxpayer purchases taxable bonds at a premium, the amortization of the premium is elective.However, if a taxpayer purchases tax-exempt bonds at a premium, the amortization of the premium is mandatory.Explain this difference in the treatment.