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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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Tobin inherited 100 acres of land on the death of his father in 2017. A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death) . The father had originally acquired the land in 1974 for $19,000 and prior to his death had made permanent improvements of $6,000. What is Tobin's basis in the land?

A) $19,000
B) $25,000
C) $300,000
D) $325,000
E) None of the above

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

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Question 52

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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.

A) True
B) False

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Question 53

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The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

Neal and his wife Faye reside in Texas, a community property state. Their community property consists of real estate (adjusted basis of $800,000; fair market value of $6 million) and personal property (adjusted basis of $390,000; fair market value of $295,000) . Neal dies first and leaves his estate to Faye. What is Faye's basis in the property after Neal's death?

If Wal-Mart stock increases in value during the tax year by $6,000, the amount realized is a positive $6,000.

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.

What is the difference between the depreciation (or cost recovery) allowed and the depreciation (or cost recovery) allowable and what effect does each have on the adjusted basis of property?

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

Which of the following is correct?

Sam and Cheryl, husband and wife, own property jointly. The property has an adjusted basis of $400,000 and a fair market value of $500,000. a.Discuss the rules for the calculation of the adjusted basis of the property to Sam if he inherits his wife's share of the property and Sam and Cheryl live in a community property state. b.If they live in a common law state?

The bank forecloses on Lisa's apartment complex. The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000. The adjusted basis of the property is $480,000, and the fair market value is $750,000. What is Lisa's recognized gain or loss?

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.What are the tax consequences to Merle and Ned? b.Would Ned recognize any gain if he sold the stock for $41,000?

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.

If the alternate valuation date is elected by the executor of the estate, the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Identify two tax planning techniques that can be used to avoid the wash sale disallowance of loss.

Alice owns land with an adjusted basis of $610,000, subject to a mortgage of $350,000. On April 1, 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?

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

Melody's adjusted basis for 10,000 shares of Cardinal, Inc. common stock is $1,000,000. During the year, she receives a 5% stock dividend that is a nontaxable stock dividend. a.What is the amount of Melody's gross income? b.What is Melody's total basis for the stock? c.What is Melody's basis per share?

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Monica sells a parcel of land to her son, Elbert, for $90,000. Monica's adjusted basis is $100,000. Three years later, Elbert gives the land to his fiancée, Karen. At that date, the land is worth $104,000. No gift tax is paid. Since Elbert is going to be stationed in the U.S. Army in Germany for 3 years, they do not plan on being married until his tour is completed. Six months after receiving the land, Karen sells it for $110,000. At the same time, Karen sends Elbert a "Dear John" email. Calculate Karen's realized and recognized gain or loss.