Question 1

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.

Accepted Answer

The answer of A donee receives depreciable property worth $85,000...

Question 2

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 should use either a weighted average approach or a LIFO approach.

Accepted Answer

The answer of When a taxpayer has purchased several lots...

Question 3

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).

Accepted Answer

The statement correctly describes the related parties under § 267's loss disallowance provision.

Question 4

If losses are disallowed in a related party transaction, the holding period for the buyer includes the holding period of the seller.

Accepted Answer

In a related-party transaction where losses are disallowed, the holding period for the buyer does not include the holding period of the seller. The holding period starts anew with the buyer.

Question 5

Purchased goodwill is assigned a basis equal to cost, and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.

Accepted Answer

Developed or self-created goodwill is not assigned a specific basis by the IRS. It cannot be depreciated or amortized for tax purposes.

Question 6

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Accepted Answer

If the adjusted basis of the property exceeds the property's fair market value at the date of the gift, the loss basis will be the fair market value of the property on that date. The gain basis will still be the same as the adjusted basis before the gift.

Question 7

On the sale of property between related parties, realized gains are recognized whereas realized losses are disallowed.

Accepted Answer

This is true according to the IRS code. When a property is sold between related parties, any gains are recognized and taxed, but any losses are disallowed. This is to prevent people from artificially creating losses for tax purposes.

Question 8

The basis of property acquired in a bargain purchase is the cost of the asset. The bargain amount (fair market value - cost) is recognized when the asset is sold.

Accepted Answer

The bargain amount (fair market value - cost) is recognized immediately as a gain when the asset is acquired in a bargain purchase. It is not recognized when the asset is sold.

Question 9

Cassie purchases a sole proprietorship for $145,000.The fair market value of the tangible assets is $110,000 and the agreed to value of goodwill is $10,000.Assuming there are no other intangible assets, Cassie's basis for the tangible assets is $132,917 ($110,000 + $22,917) and her basis for the goodwill is $12,083 ($10,000 + $2,083).

Accepted Answer

Cassie's basis for the tangible assets should be $110,000, and her basis for the goodwill should be $10,000. The total purchase price of $145,000 should be allocated based on the fair market values, not increased arbitrarily.

Question 10

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.

Accepted Answer

In a common law state, only the deceased's share of the property receives a step-up (or down) in basis to the fair market value at the date of death. The surviving spouse's original share retains its original basis.

Question 11

The basis of property received by gift is always a carryover basis.

Accepted Answer

The basis of property received by gift is generally a carryover basis, but if the fair market value at the time of the gift is less than the donor's adjusted basis, special rules apply for determining gain or loss on a subsequent sale.

Question 12

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

Accepted Answer

This is because the fair market value of the property at the decedent's death is used to calculate any potential capital gains taxes that may be owed by the beneficiary who inherits the property.

Question 13

Nontaxable stock dividends result in no change to the total basis of the old and new stock, but the basis per share decreases.

Accepted Answer

Nontaxable stock dividends do not result in any change to the total basis of the old and new stock because the value of the stock has not increased. However, the basis per share decreases because the number of shares has increased.

Question 14

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

Accepted Answer

The holding period for property acquired by gift includes the time the property was held by the donor, not automatically making it long-term. It depends on the combined holding period of the donor and the recipient.

Question 15

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.

Accepted Answer

Fran's basis in the stock is $50,000, the donor's adjusted basis, because the gift tax paid does not increase the basis unless the fair market value at the time of the gift is greater than the donor's basis.

Question 16

If the alternate valuation date is elected by the executor in 2012, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Accepted Answer

The alternate valuation date is used to potentially lower estate taxes by valuing the estate six months after the date of death, which could result in a lower total basis if the property value decreases.

Question 17

Parker bought a brand new Ferrari on January 1, 2012, for $125,000. Parker was fatally injured in an auto accident on June 23, 2012, when the fair market value of the car was $105,000. Parker was driving a loaner car from the Ferrari dealership while his car was being serviced. In his will, Parker left the Ferrari to his best friend, Ryan. Ryan's holding period for the Ferrari begins on June 23, 2012.

Accepted Answer

The answer of Parker bought a brand new Ferrari on...

Question 18

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.

Accepted Answer

The answer of If the alternate valuation date is elected...

Question 19

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

Accepted Answer

According to the IRS, the holding period of nontaxable stock rights is determined by adding the holding period of the underlying stock to the holding period of the rights. This means that if you receive nontaxable stock rights, the holding period of those rights includes the holding period of the stock on which the rights were distributed.

Question 20

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

Accepted Answer

The use of alternate valuation date is optional and can only be used when it results in a lower estate tax value than the date of death valuation. If the fair market value of the property is greater on the alternate valuation date, the executor must use the date of death valuation.

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