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

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Question 41

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Morgan owned a convertible that he had purchased two years ago for $46,000 and which he transfers to his sole proprietorship.How is the sole proprietorship's basis for the car calculated? What additional information does Morgan need?

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Morgan needs to calculate both the gain ...

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Question 42

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The holding period for nontaxable stock dividends that are the same type (i.e. ,common on common)includes the holding period of the original shares,but the holding period for nontaxable stock dividends that are not the same type (i.e. ,preferred on common)is new and begins on the date the dividend is received.

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Question 43

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Jason owns Blue Corporation bonds (face value of $10,000) ,purchased on January 1,2016,for $11,000.The bonds have an annual interest rate of 8% and a maturity date of December 31,2025.If Jason elects to amortize the bond premium,what is his taxable interest income for 2016 and the adjusted basis for the bonds at the end of 2016 (assuming straight-line amortization is appropriate) ?

Robert sold his ranch which was his principal residence during the current taxable year.At the date of the sale,the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000.The buyer paid him $500,000 in cash,agreed to take the title subject to the $200,000 mortgage,and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale.How much is Robert's realized gain on the sale?

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000,his adjusted basis for the delivery truck after the accident is $21,000.

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

Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.

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.

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4,2016,the date of the decedent's death.The executor distributes the land to Kelly on November 12,2016,at which time the fair market value is $49,000.The fair market value on February 4,2017,is $45,000.In filing the estate tax return,the executor elects the alternate valuation date.Kelly sells the land on June 10,2017,for $48,000.What is her recognized gain or loss?

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

Define a bargain purchase of property and discuss the related tax consequences.

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

Broker's commissions,legal fees,and points paid by the seller reduce the seller's amount realized.

In 2012,Harold purchased a classic car that he planned to restore for $12,000.However,Harold is too busy to work on the car and he gives it to his daughter Julia in 2016.At this time,the fair market value of the car has declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out-of-pocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?

When a property transaction occurs,what four questions should be considered with respect to the sale or other disposition?

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Lynn purchases a house for $52,000.She converts the property to rental property when the fair market value is $115,000.After deducting depreciation (cost recovery) expense of $1,130,she sells the house for $120,000.What is her recognized gain or 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.

Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000)from personal use to business use.Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis)from his mother as a gift.Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.