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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 101

True/False

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The nonrecognition treatment on realized gains of an indirect involuntary conversion of a factory building under § 1033 is elective, while a like-kind exchange of computers under § 1031 is mandatory.

A) True
B) False

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Question 102

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Taxpayer owns a home in Atlanta.His company transfers him to Chicago on January 2, 2012, and he sells the Atlanta house in early February.He purchases a residence in Chicago on February 3, 2012.On December 15, 2012, taxpayer's company transfers him to Los Angeles.In January 2013, he sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period, § 121 treatment does not apply to the sale of the second home.

A) True
B) False

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Question 103

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

The basis of property received by gift is always a carryover basis.

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

If Wal-Mart stock increases in value during the tax year by $4,500, the amount realized is a positive $4,500.

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

The basis of property acquired in a bargain purchase is the cost of the asset. The bargain amount (fair market value - cost) is recognized when the asset is sold.

Which of the following is correct?

In order to qualify for like-kind exchange treatment under § 1031, which of the following requirements must be satisfied?

Mona purchased a business from Judah for $1,000,000. Judah's records and an appraiser provided her with the following information regarding the assets purchased: What is Mona's adjusted basis for the land, building, and equipment?

Etta received nontaxable stock rights on October 3, 2012.She allocated $12,000 of the $30,000 basis for the associated stock to the stock rights.The stock rights are exercised on November 8, 2012.The exercise price for the stock is $42,000.What is Etta's basis for the acquired stock?

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.

At a particular point in time, a taxpayer can have one or two principal residences for § 121 exclusion purposes.

Stuart owns land with an adjusted basis of $190,000 and a fair market value of $500,000.If the property is going to be given to Stuart's nephew, Alex, it is preferable for the transfer to be by inheritance rather than by gift.

Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000.In addition, Pam receives $100,000 in cash.What is the recognized gain or loss and the basis of the investment land?

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.

Noelle owns an automobile which she uses for personal use.Her adjusted basis is $45,000 (i.e., the original cost) .The car is worth $22,000.Which of the following statements is correct?

Alvin is employed by an automobile dealership as its manager.As such, he purchased an SUV for $32,000 (fair market value is $48,000) .No other employees are permitted a discount.What is Alvin's basis in the SUV?

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.