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Exam 13: Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

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Question 91

True/False

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Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

A) True
B) False

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Question 92

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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?

A) $0 and $420,000.
B) $100,000 and $420,000.
C) $100,000 and $520,000.
D) $280,000 and $700,000.
E) None of the above.

F) D) and E)
G) All of the above

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Question 93

Multiple Choice

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The holding period of property acquired by gift may begin on:

Elvis owns all of the stock of Shadow Corporation.The accumulated earnings and profits of Shadow Corporation at the end of the year are a deficit of $110,000.The current earnings and profits are $0.Elvis' basis for his stock is $295,000.He receives a distribution of $300,000 on the last day of the tax year.How much gain should Elvis report?

The basis of property received by inheritance is a carryover basis.

Kimmy sells her personal use automobile for $19,000.She purchased the car three years ago for $35,000.What is Kimmy's recognized gain or loss?

Alex used the § 121 exclusion three months prior to his marriage to June.If June sells her principal residence four months after their marriage,she can use the § 121 exclusion.

Molly exchanges a small machine (adjusted basis of $85,000;fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000;fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like-kind exchange.What is Molly's recognized gain or loss?

Which of the following qualify as a like-kind exchange?

Which of the following might motivate a taxpayer to try to avoid like-kind exchange treatment?

If a taxpayer reinvests the net proceeds (amount received - related expenses)received in an involuntary conversion in qualifying replacement property within the statutory time period,the realized gain cannot be recognized.

Abner gives his daughter,Melissa,stock (basis of $50,000;fair market value of $44,000) .No gift tax is paid.If Melissa subsequently sells the stock for $53,000,what is her recognized gain or loss?

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

Sarah is an executive at Robin Yogurt.Because she loves the yogurt so much,in the current year she decides to buy a yogurt machine from Robin for $9,300.The machine cost the company $9,000 (the wholesale price) ,and it has a fair market value of $12,500 (price at which sold at retail) .Only executives are permitted to buy yogurt machines at a discount.What is Sarah's adjusted basis for the yogurt machine and how much must she include in her gross income?

A factory building owned by Amber,Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

The maximum amount for the § 121 exclusion (exclusion of gain on sale of principal residence)that can reduce taxable income for an unmarried taxpayer is $250,000 and for a married taxpayer is $500,000.

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4,2010,the date of the decedent's death.The executor distributes the land to Kelly on November 12,2010,at which time the fair market value is $49,000.The fair market value on February 4,2011,is $45,000.In filing the estate tax return,the executor elects the alternate valuation date.Kelly sells the land on June 10,2011,for $48,000.What is her recognized gain or loss?

Rita and Todd exchange real estate in a like-kind exchange.Rita's property is subject to a $40,000 mortgage and has a basis of $75,000 (fair market value of $112,000) .She receives real estate with a fair market value of $72,000 and Todd assumes the mortgage.What is her recognized gain and adjusted basis for the real estate received?

To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Carlton purchases land for $300,000.He incurs legal fees of $5,000 associated with the purchase.He subsequently incurs additional legal fees of $20,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $600,000.What is Carlton's basis for the land and the improvements?