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Exam 7: Property Transactions: Basis, Gain and Loss, and Nontaxable Exchanges

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Question 51

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Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1, 2019, for $11,000.The maturity date is December 31, 2028.The annual interest rate is 4%.What is the amount of taxable interest income that Karen should report for 2019, and the adjusted basis for the bonds at the end of 2019, assuming straight-line amortization is appropriate?

A) $0 and $11,000
B) $0 and $10,900
C) $100 and $11,000
D) $100 and $10,900

E) B) and C)
F) All of the above

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Question 52

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If the buyer assumes the seller's liability on the property acquired, the seller's amount realized is decreased by the amount of the liability assumed.

A) True
B) False

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Question 53

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Milton purchases land and a factory building for his business for $300,000 with $100,000 being allocated to the land. During the first year, Milton deducts cost recovery of $4,922.Milton's adjusted basis for the building at the end of the first year is $195,078 ($200,000 - $4,922).

A taxpayer who has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold should use either a weighted average approach or a LIFO approach.

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000.If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 cash to her niece.

Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock.His first purchase was in 1996 when he acquired 30 shares for $20 a share.In 2003, Alfred bought 150 shares at $10 a share.In 2018, Alfred acquired 200 shares at $50 a share.He intends to sell 125 shares at $60 per share in the current year (2019) .If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

Pat owns a 1965 Ford Mustang that he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

The amount of a corporate distribution qualifying for capital recovery treatment that exceeds the shareholder- recipient's basis in the stock investment is treated as a capital gain.

Wyatt sells his principal residence in December 2019 and qualifies for the § 121 exclusion.He sells another principal residence in November 2020.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

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

The basis of boot received in a like-kind exchange is its fair market value unless the realized gain is a smaller amount.

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

Kevin purchased 5,000 shares of Purple Corporation stock at $10 per share.Two years later, he receives a 5% common stock dividend.At that time, the common stock of Purple Corporation had a fair market value of $12.50 per share.What is the basis of the Purple stock, the per share basis, and gain recognized upon receipt of the common stock dividend?

In 2015, Harold purchased a classic car that he planned to restore for $12,000.However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2019.At that time, the fair market value of the car had declined to $10,000.Harold paid no gift tax on the transaction.Julia completes some of the restoration herself with out-of-pocket costs of $5,000.She later sells the car for $30,000.What is Julia's recognized gain or loss on the sale of the car?

Alice owns land with an adjusted basis of $305,000, subject to a mortgage of $175,000.On April 1, 2019, Alice sells her land subject to the mortgage for $325,000 in cash, a note for $300,000, and property with a fair market value of $60,000.What is Alice's amount realized on this sale?

Lola owns land as an investor.She exchanges the land for a warehouse that she leases to a tenant who uses it to store his business inventory.The exchange qualifies for like-kind exchange treatment.

Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 2, 2019.During 2019, she sells 25 shares of the 100 shares purchased on January 2, 2019, 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?

The amount received for a utility easement on land is included in the gross income of the taxpayer.

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.