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

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Question 61

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Alicia buys a beach house for $425,000 which she uses as her personal vacation home.She builds an additional room on the house for $45,000.She sells the property for $510,000 and pays $30,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?

A) $0.
B) $6,000.
C) $30,000.
D) $40,000.
E) None of the above.

F) A) and C)
G) D) and E)

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Question 62

Multiple Choice

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Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000) .Of the insurance proceeds of $360,000 she receives,Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit.She received only $360,000 because of a co-insurance clause in her insurance policy.What is Joyce's recognized gain or loss?

A) $0.
B) $10,000 loss.
C) $10,000 gain.
D) $40,000 gain.
E) None of the above.

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

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Question 63

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On February 2,2012,Karin purchases real estate for $375,000.The annual property taxes of $5,000 are payable on December 31.Realizing that she will pay the property taxes for the entire year,Karin remits $374,575 to the seller at closing.Karin's adjusted basis for the real estate is:

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1,2004.In the current tax year,she sells 25 shares of the 100 shares purchased on January 1,2004,for $2,500.Twenty-five days earlier,she had purchased 30 shares for $3,000.What is Karen's recognized gain or loss on the sale of the stock,and what is her basis in the 30 shares purchased 25 days earlier?

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.

In addition to other gifts,Megan made a gift of stock to Jeri in 1975.Megan had purchased the stock in 1973 for $7,500.At the time of the gift,the stock was worth $20,000.If Megan paid $850 of gift tax on the transaction in 1975,what is Jeri's gain basis for the stock?

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

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

Which of the following statements correctly reflects the rules regarding inherited property in 2012?

Bill is considering two options for selling land for which he has an adjusted basis of $80,000 and on which there is a mortgage of $75,000.Under the first option,Bill will sell the land for $170,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete.Under the second option,Bill will sell the land for $95,000 and the buyer will assume the mortgage.Calculate Bill's recognized gain under both options.

Alice owns land with an adjusted basis of $610,000,subject to a mortgage of $350,000.Real estate taxes are $9,000 per calendar year and are payable on December 31.On April 1,2012,Alice sells her land subject to the mortgage for $650,000 in cash,a note for $600,000,and property with a fair market value of $120,000.What is the amount realized?

Hubert purchases Fran's jewelry store for $950,000.The identifiable assets of the business are as follows: Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete.How should Hubert allocate the $950,000 purchase price to the assets?

Misty owns stock in Violet,Inc.,for which her adjusted basis is $128,000.She receives a cash distribution of $50,000 from Violet.

On January 15 of the current taxable year,Merle sold stock with a cost of $40,000 to his brother Ned for $25,000,its fair market value.On June 21,Ned sold the stock to a friend for $26,000.

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

Maurice sells his personal use automobile at a realized loss.Under what circumstances can Maurice deduct the loss? What if the personal use asset was sold at a realized gain?

Nontaxable stock dividends result in no change to the total basis of the old and new stock,but the basis per share decreases.

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 recognized gain on the sale?

What is the easiest way for a taxpayer who is going to sell property that has declined in value to avoid the § 267 loss disallowance provision?

Describe the relationship between the recovery of capital doctrine and the realized and recognized gain and loss concepts.