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

Question 1

If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Answer 1

False

Question 2

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the recipient's stock basis is treated as an ordinary gain.

Answer 2

False

Question 3

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.

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

Question 8

The amortization of bond premium decreases the basis of the bond and the amortization of bond discount increases the basis of the bond.

Question 9

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Question 10

Molanda sells a parcel of land for $18,000 in cash and the buyer assumes Molanda's mortgage of $12,000 on the land.Molanda's amount realized is $30,000.

Question 11

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

Question 12

Deductions taken for depreciation or cost recovery on business or income-producing property reduce the adjusted basis of the property.

Question 13

The adjusted basis of property that is stolen is reduced by the amount of insurance proceeds received and by any recognized loss.

Question 14

If a distribution by a corporation to a shareholder exceeds the corporation's earnings and profits,the excess first reduces the shareholder's stock basis to zero and any remaining excess is classified as capital gain or ordinary income depending on the shareholder's holding period for the stock.

Question 15

Ricky owns all the stock of Amethyst,Inc.(adjusted basis of $100,000).If he receives a distribution from Amethyst of $94,000 and corporate earnings and profits are $10,000,Ricky has a capital gain of $6,000.

Question 16

Bond premium on tax-exempt bonds must be amortized.The annual amortization reduces the owner's taxable income and decreases the adjusted basis for the bond.

Question 17

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.

Question 18

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

Question 19

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.

Question 20

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.

Question 21

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

Question 22

Purchased goodwill is assigned a basis,but developed or self-created goodwill is not assigned a basis.

Question 23

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).

Question 24

Cassie purchases a sole proprietorship for $125,000.The fair market value of the tangible assets is $100,000 and the agreed to value of goodwill is $15,000.Assuming there are no other intangible assets,Cassie's basis for the tangible assets is $108,696 ($100,000 + $8,696)and her basis for the goodwill is $16,304 ($15,000 + $1,304).

Question 25

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

Question 26

Nontaxable stock dividends result in no change to the total basis of the old and new stock.

Question 27

Parker bought a brand new Ferrari on January 1,2010,for $125,000.Parker was fatally injured in an auto accident on June 23,2010,when the fair market value of the car was $98,000.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on January 1,2010.

Question 28

A donee receives depreciable property worth $85,000 (basis to donor of $150,000)with no gift tax being paid on the transfer.The donee's basis for depreciation purposes is $85,000.

Question 29

Section 267 provides that realized losses and realized gains from related party transactions are not recognized.

Question 30

A related party purchaser includes in the basis of the property acquired the seller's disallowed loss.

Question 31

This year,Fran receives a birthday gift of stock worth $75,000 from her aunt.The aunt has owned the stock (adjusted basis $50,000)for 10 years and pays gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

Question 32

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold,he may choose which lot of stock is deemed to be sold.

Question 33

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.

Question 34

In the case of a bargain purchase,the adjusted basis of an asset can exceed the cost of the asset to the purchaser.

Question 35

The alternate valuation date amount cannot be elected if the property in the estate appreciates in value during the six-month period after death.

Question 36

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.

Question 37

Todd gives Sam stock (adjusted basis of $72,000;fair market value of $69,000).Sam later sells the stock for $71,000.Sam's recognized loss is $1,000 ($71,000 amount realized - $72,000 adjusted basis).

Question 38

Angela receives stock (worth $11,000)as a gift from her aunt.Her aunt's adjusted basis is $7,000 and the transfer did not result in a gift tax.Angela's basis in the stock is $11,000.

Question 39

If the alternate valuation date is elected by the executor,the total basis of inherited property will be less than what it would have been if the primary valuation date and amount had been used.

Question 40

The holding period for property acquired by gift is automatically long term.

Question 41

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 of cash to her niece.The same preference would exist if the recipient were a qualified charitable organization.

Question 42

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the form but not the substance of the taxpayer's relative economic position.

Question 43

The exchange of unimproved real property located in Topeka (KS)for improved real property located in Atlanta (GA)qualifies as a like-kind exchange.

Question 44

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Question 45

One of the justifications for nontaxable exchange treatment is that the taxpayer lacks the wherewithal to pay.

Question 46

The basis of property acquired in a wash sale is its cost plus the loss recognized on the wash sale.

Question 47

Ben sells stock (adjusted basis of $14,000)to his son,Ray,for its fair market value of $9,500.Ray gives the stock to his daughter,Trish,who subsequently sells it for $13,500.Ben's recognized loss is $0 and Trish's recognized gain is $0 ($13,500 - $9,500 - $4,000).

Question 48

Livestock of different sexes cannot qualify for like-kind exchange treatment even if the livestock has been held for over one year.

Question 49

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.

Question 50

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Question 51

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

Question 52

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.

Question 53

A building located in Virginia (used in business)exchanged for a building located in France (used in business)cannot qualify for like-kind exchange treatment.

Question 54

Property that has been converted from personal use to business or income-producing use will be dual basis property if the adjusted basis exceeds the fair market value at the date of conversion.

Question 55

Jena owns land as an investor.She exchanges the land for a warehouse in which she will store the inventory of her business.The exchange does not qualify for like-kind exchange treatment.

Question 56

In a nontaxable exchange,the replacement property is assigned a carryover basis.

Question 57

A loss from the sale of a personal use asset that would be disallowed can be recognized if the taxpayer converts the asset to business use prior to its sale.

Question 58

Stocks and bonds held for investment purposes qualify under the like-kind exchange provision.

Question 59

The taxpayer owns land with an adjusted basis of $20,000 and a fair market value of $50,000.If the property is going to be given to the taxpayer's nephew,it is preferable for the transfer to be by inheritance rather than by gift.

Question 60

A taxpayer can recognize a realized loss on a § 1031 like-kind exchange.

Question 61

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Question 62

A taxpayer cannot replace property before its condemnation and still qualify for nonrecognition treatment.

Question 63

The basis of boot received in a like-kind exchange is its fair market value.

Question 64

If boot in the form of cash is given in a § 1031 like-kind exchange,the realized gain is not recognized.

Question 65

Pierce exchanges an asset (adjusted basis of $14,000;fair market value of $18,000)for another asset (fair market value of $15,000).In addition,he receives cash of $3,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $3,000 and his adjusted basis for the property received is $17,000 ($14,000 + $3,000 recognized gain).

Question 66

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.

Question 67

In a like-kind exchange involving boot,the ceiling on recognized gain is the lower of realized gain or boot received.

Question 68

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received,the taxpayer is considered to have received boot in the transaction.

Question 69

Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Question 70

The requirements for replacement property in involuntary conversions are generally less restrictive than the requirements in like-kind exchanges.

Question 71

The holding period of like-kind property received in a like-kind exchange includes the holding period of the property given up.

Question 72

An exchange of two items of personal property (personality)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Question 73

Under § 1033,a realized gain on an involuntary conversion can be postponed but a realized loss cannot.

Question 74

The exchange of personal use property whose holding period is long-term for other personal use property (e.g. ,trade-in of personal use automobiles)can qualify as like-kind property if the personal use property received is held long term.

Question 75

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).

Question 76

A condemned office building owned and used in the business by a taxpayer can be replaced by land and qualify for nonrecognition treatment.

Question 77

If there is a realized gain on a like-kind exchange,both the receipt of boot and the giving of boot result in part or all of the realized gain being recognized.

Question 78

To qualify for nonrecognition treatment,an office building destroyed by fire can be replaced with another office building in a different state.

Question 79

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Question 80

An exchange of business or investment property for like-kind property with a § 267 related party can qualify as a § 1031 like-kind exchange.