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

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Question 51

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For a corporate distribution of cash or other property to a shareholder,when does dividend income or a return of capital result?

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To the extent of corporate earnings and ...

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Question 52

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Capital recoveries include:

A) The cost of capital improvements.
B) Ordinary repair and maintenance expenditures.
C) Payments made on the principal of a mortgage on taxpayer's building.
D) Amortization of bond premium.
E) All of the above.

F) C) and E)
G) B) and C)

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Question 53

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Milton owns a bond (face value of $25,000) for which he paid $28,000.Which of the following statements is correct?

Gene purchased an SUV for $42,000 which he uses 100% for personal purposes.When the SUV is worth $29,000,he contributes it to his business.The gain basis is $42,000,the loss basis is $29,000,and the basis for cost recovery is $29,000.

If insurance proceeds are received for property used in a trade or business,a casualty transaction can result in recognized gain or recognized loss.

Albert purchased a tract of land for $140,000 in 2009 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 2012 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2012?

For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e.,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e.,greater than 50% of the capital interests or profits interest in the partnership).

Alice is terminally ill and does not expect to live much longer.Pondering the consequences of her estate,she decides how to allocate her property to her nieces.She makes a gift of depreciated property (i.e.,adjusted basis exceeds fair market value)to Marsha,a gift of appreciated property (i.e.,fair market value exceeds adjusted basis)to Jan,and leaves appreciated property to Cindy in her will.Each of the properties has the same fair market value.From an income tax perspective,which niece is her favorite?

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?

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.

Cassie purchases a sole proprietorship for $145,000.The fair market value of the tangible assets is $110,000 and the agreed to value of goodwill is $10,000.Assuming there are no other intangible assets,Cassie's basis for the tangible assets is $132,917 ($110,000 + $22,917)and her basis for the goodwill is $12,083 ($10,000 + $2,083).

Faith inherits an undivided interest in a parcel of land from her father on February 15,2012.Her father purchased the land on August 25,1985 and his basis for the land was $325,000.The fair market value of the land is $12,500,000 on the date of her father's death and is $11,000,000 six months later.The executor elects the alternate valuation date.Faith has nine brothers and sisters and each inherited a one-tenth interest.

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.

Mike's basis in his stock in Tan Corporation is $75,000.He receives nontaxable stock rights (fair market value of $20,000) when the value of the stock is $100,000.What is the basis for the stock rights?

Paul sells property with an adjusted basis of $45,000 to his daughter Dean,for $38,000.Dean subsequently sells the property to her brother,Preston,for $38,000.Three years later,Preston sells the property to Hun,an unrelated party,for $50,000.What is Preston's recognized gain or loss on the sale of the property to Hun?

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets,how is the excess allocated among the purchased assets?

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

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits,the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

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.