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Exam 14: Property Transactions: Determination of Gain or Loss and Basic Considerations

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Question 21

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If a husband inherits his deceased wife's share of jointly owned property in a common law state, both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

A) True
B) False

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Question 22

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The amount received for a utility easement on land is included in the gross income of the taxpayer.

A) True
B) False

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Question 23

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The basis of personal use property converted to business use is:

Under the Internal Revenue Code, the holding period for property acquired by inheritance is always:

Sandra's automobile, which is used exclusively in her trade or business, was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?

Albert purchased a tract of land for $140,000 in 2016 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 2019 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2019?

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

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

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.

Tobin inherited 100 acres of land on the death of his father in 2019.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 1976 for $19,000 and prior to his death had made permanent improvements of $6,000.What is Tobin's basis in the land?

The terms "realized gain" and "recognized gain" can be used interchangeably; they mean the same thing.

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

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.

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later, he receives a 5% common stock dividend.At that time, the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple stock, the per share basis, and gain recognized upon receipt of the common stock dividend?

Mary sells her personal use automobile for $20,000.She purchased the car two years ago for $17,000.What is Mary's recognized gain or loss? It increased in value due to its excellent mileage plus a safe design.

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?

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

The bank forecloses on Lisa's apartment complex.The property had been pledged as security on a nonrecourse mortgage whose principal amount at the date of foreclosure is $750,000.The adjusted basis of the property is $480,000, and the fair market value is $750,000.What is Lisa's recognized gain or loss?

Jason owns Blue Corporation bonds (face value of $10,000) , purchased on January 1, 2019, for $11,000.The bonds have an annual interest rate of 3% and a maturity date of December 31, 2028.If Jason elects to amortize the bond premium, what are his taxable interest income for 2019 and the adjusted basis for the bonds at the end of 2019 (assuming straight-line amortization is appropriate) ?

The basis of property acquired in a bargain purchase is its cost.