Question 1

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend, the original stock's basis is allocated to all shares

Accepted Answer

If the stock received as a stock dividend is not the same type as the stock owned before the dividend, the allocation is based on relative FMVs.

Question 2

In the current year, Andrew received a gift of property from his uncle. At the time of the gift, the property had a FMV of $114,000 and an adjusted basis to his uncle of $70,000. After deducting the annual exclusion, the amount of the gift was $100,000. Andrew's uncle paid a gift tax on the property of $24,000. What is the amount of Andrew's basis in the property?

Accepted Answer

$70,000 + [$24,000 × ($114,000 - $70,000/$100,000)] = $80,560

Question 3

Monte inherited 1,000 shares of Corporation Zero stock from his father who died on March 4 of the current year. His father paid $30 per share for the stock on September 2, 2005. The FMV of the stock on the date of death was $50 per share. On September 4 this year, the FMV of the stock was $55 per share. The executor did not elect the alternate valuation date. Monte sold the stock for $65 per share on December 3. What is the amount and nature of any gain or loss?

Accepted Answer

$65,000 amount realized - $50,000 basis = $15,000. Gains on the sale of inherited property are always LTCG.

Question 4

Dustin purchased 50 shares of Short Corporation for $500. During the current year, Short declared a nontaxable 10% stock dividend. What is the basis per share before and after the stock dividend is distributed?

Accepted Answer

500 original basis/ (50 original shares + 5 new shares) = $9.09

Question 5

Billy and Sue are married and live in Texas, a community property state. They jointly own real property with an adjusted basis of $200,000. When the property has a FMV of $450,000, Billy dies leaving all of the property to Sue. If she later sells the property for $650,000, what is Sue's gain on the sale?

Accepted Answer

$650,000 amount realized - $450,000 basis = $200,000. Both her portion and Billy's portion get a step-up in basis.

Question 6

Joycelyn gave a diamond necklace to her granddaughter Emma. Joycelyn had purchased the necklace in 1980 for $15,000. The FMV of the necklace at the time of the gift was $44,000. After deducting the annual exclusion, the amount of the gift was $30,000. Gift taxes of $10,000 were paid. What is Emma's adjusted basis in the necklace?

Accepted Answer

$15,000 + [$10,000 × ($44,000-15,000) / $30,000) = $24,667.

Question 7

Tina purchases a personal residence for $278,000, but subsequently converts the property to rental property when its FMV is $275,000. Assume depreciation of $65,000 has been deducted after conversion to rental use. If Tina sells the property for $200,000, her realized gain or loss will be

Accepted Answer

11eac5e3_b0cb_b72d_a396_c1e5b50cfd58_TB5639_00

Question 8

During the current year, Don's aunt Natalie gave him a house. At the time of the gift, the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000. After deducting the annual exclusion, the amount of the gift was $130,000. His aunt paid a gift tax of $20,000 on the house. What is Don's basis in the house for purposes of determining gain?

Accepted Answer

$133,000 + [$20,000 × ($144,000 - $133,000)/$130,000)] = $134,692.

Question 9

In a common law state, jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

Accepted Answer

In a common law state, the surviving spouse's basis is equal to 1/2 of the original adjusted basis of the property (half of joint ownership) and 1/2 of the fair market value on the decedent's death (decedent's half).

Question 10

Terrell and Michelle are married and living in New York, which is a not a community property state. They jointly own property with an adjusted basis of $240,000. On December 2 of this year, Michelle died when the property had a fair market value of $260,000. Terrell's basis in the property after Michelle's death is

Accepted Answer

[($240,000 × .50) + ($260,000 × .50)] = $250,000. Terrell's adjusted basis is 1/2 of the adjusted basis of the property plus 1/2 of the FMV of the property on Michelle's date of death.

Question 11

In 2011 Toni purchased 100 shares of common stock in Blue Corporation for $5,280. In 2012, Blue declared a stock dividend of one share of its common stock for each 10 shares held. This year, 2014, Blue's common stock split 2 for 1 at a time when the FMV was $80 a share. What is Toni's basis in each of her shares of the Blue Corporation stock if both distributions were tax-free?

Accepted Answer

$5,280 / (100 + 10 + 110 shares) = $24

Question 12

Brad owns 100 shares of AAA Corporation with a basis of $6,000 and a FMV of $24,000. Brad receives 15 stock rights as a nontaxable distribution with a total FMV of $6,000. Brad allows the stock rights to expire. Brad's loss recognized and the basis of the original 100 shares after expiration of the stock rights is

Accepted Answer

If the stock rights expire, no loss is recognized and any basis allocated to the rights is reallocated back to the stock.

Question 13

Melody inherited 1,000 shares of Corporation Zappa stock from her mother who died on March 4 of the current year. Her mother paid $30 per share for the stock on September 2, 2005. The FMV of the stock on the date of death was $65 per share. On September 4 of the current year, the FMV of the stock was $70 per share. Melody sold the stock for $85 per share on December 3. The estate qualified for, and the executor elected, the alternate valuation method for these and other assets in the estate. An estate tax return was filed. What was Melody's basis in the stock on the date of the sale?

Accepted Answer

$70 (per share price on alternate valuation date) × 1,000 shares = $70,000

Question 14

Bob owns 100 shares of ACT Corporation common stock with a basis of $3,500 and a FMV of $12,000. Bob receives 10 stock rights as a nontaxable distribution, and no basis is allocated to the stock rights. With each stock right, Bob may acquire one share of stock for $25. Bob exercises all 10 stock rights. The total basis of the newly acquired stock is

Accepted Answer

10 shares × $25 cost per share = $250

Question 15

Douglas and Julie are a married couple who live in Louisiana, a community property state. They jointly own property with an adjusted basis of $140,000. On December 2 of this year, Julie died when the property had a fair market value of $160,000. Douglas's basis in the property after Julie's death is

Accepted Answer

If the decedent and the decedent's spouse own property under community property laws, one-half of the property is included in the decedent's gross estate and its basis to the surviving spouse is its FMV. The surviving spouse's one-half share of the community property is also adjusted to FMV.

Question 16

In a community property state, jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

Accepted Answer

If the decedent and the decedent's spouse own property under community property laws, one-half of the property is included in the decedent's gross estate and its basis to the surviving spouse is its FMV. The surviving spouse's one-half share of the community property is also adjusted to FMV.

Question 17

Jamahl and Indira are married and live in a common law state. They jointly own real property with an adjusted basis of $200,000. When the property has a FMV of $450,000, Jamahl dies leaving all of the property to Indira. If she later sells the property for $700,000, what is Indira's gain on the sale?

Accepted Answer

When Jamahl dies, the property receives a step-up in basis to its fair market value on the date of his death, which is $450,000. Therefore, Indira's adjusted basis in the property is now $450,000. When Indira sells the property for $700,000, her gain is calculated as follows: 
Sales price: $700,000
Less adjusted basis: $450,000
Gain: $250,000
Therefore, the answer is choice C, $375,000.

Question 18

Jessica owned 200 shares of OK Corporation with a basis of $12,000 and a FMV of $24,000. Jessica received 20 stock rights as a nontaxable distribution with a total FMV of $8,000. Jessica sold the stock rights for $4,000. Jessica's gain or loss on the sale was

Accepted Answer

$8,000 / $32,000 × $12,000 = $3,000 basis of stock rights. Selling price of $4,000 - $3,000 = $1,000 gain on sale. Because the FMV of the stock rights is at least 15% of the FMV of the stock, the basis must be allocated between the stock and the rights.

Question 19

Josh purchases a personal residence for $278,000 but subsequently converts the property to rental property when its FMV is $275,000. Assume depreciation of $65,000 has been deducted after conversion to rental use. If Josh sells the property for $280,000, his gain or loss will be

Accepted Answer

11eac5e3_b0cb_de3e_a396_35cbed1f4731_TB5639_00 The basis for determining gain is the property's adjusted basis when converted less depreciation taken before the disposition.

Question 20

David gave property with a basis of $133,000 to Hannah when the property had a FMV of $100,000 and paid gift taxes of $8,000. If Hannah later sells the property for $140,000, Hannah's basis (to determine gain) in the property immediately before the sale is

Accepted Answer

There is a dual basis when the FMV is below the adjusted basis as of the date of gift. Because the property is sold at a gain, the adjusted basis as of the gift date is used, but there is no addition for gift taxes paid since the property has not appreciated at the date of gift.

Quiz 5: Property Transactions: Capital Gains and Losses