Question 1

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

The correct answer is A because the gain or loss on the sale of the stock rights is calculated as the difference between the sale price and the FMV of the stock rights at the time of distribution. In this case, the sale price is $4,000 and the FMV of the stock rights at the time of distribution is $8,000, so the gain on the sale is $4,000.

Question 2

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

Before the dividend, the basis per share is $500/50 = $10. After a 10% stock dividend, Dustin has 55 shares. The total basis remains $500, so the new basis per share is $500/55 = $9.09.

Question 3

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

In a community property state, the surviving spouse would automatically receive a step-up in basis for the entire property to fair market value at the time of the other spouse's death. However, in a non-community property state like New York, only the portion of the property owned by the deceased spouse receives a step-up in basis. Michelle owned 50% of the property, so her half receives a step-up in basis to $130,000 (50% of the fair market value). Terrell's half retains its original basis of $120,000. Therefore, Terrell's new basis after Michelle's death is $120,000 + $130,000 = $250,000.

Question 4

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

When Melody inherited the stock, her basis was equal to the fair market value of the stock on the date of her mother's death, which was $65,000 (1,000 shares x $65 per share). Since the estate elected the alternate valuation method, the basis of the stock was adjusted to the FMV on September 4 of the current year, which was $70 per share. Therefore, Melody's basis in the stock was $70,000 (1,000 shares x $70 per share). When she sold the stock for $85 per share, her capital gain was $15 per share, or $15,000 in total.

Question 5

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

The original stock's basis should be allocated based on relative fair market values at the time of the stock dividend. This is because the basis needs to be adjusted to reflect the change in value of the stock due to the stock dividend. Allocating based on par value or equally to all shares owned would not accurately reflect the change in value.

Question 6

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

The answer of Bob owns 100 shares of ACT Corporation...

Question 7

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

Since the stock rights were received as a nontaxable distribution and were allowed to expire, no loss is recognized, and the basis of the original 100 shares remains unchanged at $6,000.

Question 8

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

The basis for inherited stocks is their fair market value (FMV) on the date of death. In this case, Monte inherited the stock at a cost basis of $50 per share. When he sells the stock in December for $65 per share, he has a long-term capital gain (LTCG) of $15 per share ($65 - $50). Since he held the stock for more than one year, the gain is considered a LTCG.

Note: The purchase price of $30 per share that Monte's father paid in 2005 is irrelevant for tax purposes, as the basis for inherited assets is always their FMV on the date of death. The FMV of $55 per share on September 4 is also irrelevant since the executor did not elect to use the alternate valuation date.

Question 9

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

Hannah's basis in the property is the same as David's basis at the time of the gift, which is $133,000, because the FMV at the time of the gift was less than the donor's basis and no loss is recognized.

Question 10

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

The answer of Douglas and Julie are a married couple...

Question 11

During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $145,000 and his aunt's adjusted basis was $134,000.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

Don's basis in the house for determining gain is the sum of his aunt's adjusted basis ($134,000) and the amount of gift tax paid on the gift ($20,000), which is equal to $154,000. However, this amount must be adjusted for the gift tax paid as a percentage of the amount of the gift (not the FMV), which is equal to ($20,000/$130,000) x $145,000 = $22,308. Therefore, Don's adjusted basis in the house is $134,000 + $22,308 = $135,692.

Question 12

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

The answer of In a common law state,jointly owned property...

Question 13

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 $115,000 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

Andrew's basis in the property will be equal to his uncle's adjusted basis or the FMV of the property at the time of the gift, whichever is less. In this case, the FMV of the property was $115,000, but since Andrew's uncle paid gift tax on the property, the amount of the gift for calculating Andrew's basis will be reduced by the gift tax paid, which is $24,000. Therefore, the amount of the gift for basis calculation will be $100,000 - $24,000 = $76,000. Since the adjusted basis to Andrew's uncle was $70,000, which is less than the gift amount for basis calculation, Andrew's basis will be $70,000. However, if Andrew decides to sell the property in the future and realizes a gain, he may be able to add back the gift tax paid by his uncle (proportionate to the gain) to his basis, resulting in a higher basis.

Question 14

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

The answer of Billy and Sue are married and live...

Question 15

In 2017,Toni purchased 100 shares of common stock in Blue Corporation for $5,280.In 2018,Blue declared a stock dividend of one share of its common stock for each 10 shares held.In 2019,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 of the earlier stock dividends were tax-free?

Accepted Answer

Toni's original basis was $5,280 for 100 shares, or $52.80 per share. After the 10% stock dividend, she had 110 shares, making the basis $48 per share. After the 2-for-1 stock split, she had 220 shares, making the basis $24 per share.

Question 16

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 at the time of his death, which is $450,000. Therefore, Indira's new adjusted basis in the property is $450,000. When she sells the property for $700,000, her gain is the sales price minus her adjusted basis, or $700,000 - $450,000 = $250,000.

Question 17

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

In a community property state, all property acquired during the marriage is considered community property and is owned equally by both spouses. Upon the death of one spouse, their share of the community property receives a step-up in basis to the fair market value at the date of death. Therefore, the correct answer is B, the total fair market value of the entire property at the date of death (if the alternative valuation date was not elected).

Question 18

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

The gain is calculated as the selling price ($280,000) minus the adjusted basis. The adjusted basis is the original purchase price ($278,000) minus depreciation ($65,000), which equals $213,000. Therefore, the gain is $280,000 - $213,000 = $67,000.

Question 19

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

The realized loss is the difference between the selling price and the adjusted basis. The adjusted basis is the original cost plus any improvements minus any depreciation. In this case, the adjusted basis is $278,000 - $65,000 = $213,000. The realized loss is $213,000 - $200,000 = $13,000.

Question 20

Joycelyn gave a diamond necklace to her granddaughter Emma.Joycelyn had purchased the necklace in 1980 for $20,000.The FMV of the necklace at the time of the gift was $50,000.After deducting the annual exclusion,the amount of the gift was $35,000.Gift taxes of $10,000 were paid.What is Emma's adjusted basis in the necklace?

Accepted Answer

To find Emma's adjusted basis in the necklace, we need to start with the original purchase price of the necklace, which was $20,000. However, since the gift tax was paid by the donor (Joycelyn), we need to add that amount back to the purchase price to arrive at the adjusted basis.

Adjusted Basis = Purchase Price + Gift Tax paid
Adjusted Basis = $20,000 + $10,000
Adjusted Basis = $30,000

Therefore, the correct answer is (B) $28,571.

Quiz 21: Property Transactions: Capital Gains and Losses