Question 1

Hilliard receives a gift of stock from Martha on June 1 of the current year. Martha paid $15,000 for the stock several years ago. Martha pays a gift tax of $400 on the transfer.
I.If the fair market value of the stock on June 1 of the current year is $20,000, Hilliard has a basis in the stock of $15,100.
II.If the fair market value of the stock on June 1 of the current year is $14,000, and Hilliard sells the stock for $13,000 on June 2 of the current year, Hilliard realizes a loss on the sale of $1,000.
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Accepted Answer

The answer of Hilliard receives a gift of stock from...

Question 2

Hector receives a gift of rare books valued at $7,000. The books have an adjusted basis of $11,000 to the donor. Several months later, Hector sells the books to a professional collector for $8,000. What is Hector's gain or (loss) on the sale?

Accepted Answer

The answer of Hector receives a gift of rare books...

Question 3

Sonya inherits 1,000 shares of Big Red Airline Corporation stock from the estate of her Uncle Tony. Tony died on August 4, 2018. The stock's value on August 4, 2018, is $2,000. Tony purchased the stock for $3,000 several years ago. Sonya sells the 1,000 shares for $2,300 on December 8, 2018. What is Sonya's holding period of the stock?

Accepted Answer

Sonya inherited the stock from her Uncle Tony, therefore the holding period of the stock is determined by the date of Tony's purchase. Since several years have passed between the purchase and the sale of the stock, it falls under long-term capital gains. The value of the stock on the day Sonya inherited it or sold it is not relevant for determining the holding period. The payment of estate tax is also not relevant for determining the holding period.

Question 4

Kobe receives a gift of rare books valued at $10,000. The books have an adjusted basis of $6,000 to the donor. Several months later, Kobe sells the books to a professional collector for $7,000. What is Kobe' gain or (loss) on the sale?

Accepted Answer

Kobe's gain on the sale is calculated based on the difference between the selling price ($7,000) and the donor's adjusted basis ($6,000), since the selling price is more than the adjusted basis but less than the fair market value at the time of the gift. Therefore, Kobe realizes a $1,000 gain.

Question 5

On June 10, 2017, Akira receives a gift of a rare marble statue with a fair market value of $9,000. The marble statue had an adjusted basis of $12,000 to the donor and was purchased in 2016. Akira sells the marble statue July 5, 2018, for $8,000. When does Akira's holding period for the rare marble statue begin?

Accepted Answer

Under the basis rules, when receiving a gifted asset, the donee assumes the same holding period as the donor. Therefore, Akira's holding period for the marble statue will begin in 2017, which is when she received the gift.

Question 6

On July 3, 2018, Cynthia receives a gift of a collection of books valued at $10,000. The books have an adjusted basis of $6,000 to the donor. They had been purchased in 2006. Several months after receiving the gift, Cynthia sells the books to a professional collector for $9,000. How is Cynthia's holding period for the books determined?

Accepted Answer

Cynthia's holding period for the books begins in 2006, the year in which the donor purchased the books. The holding period is not affected by the fact that the books were gifted to Cynthia.

Question 7

Tillman is building a warehouse for use in his business. The construction costs include the following:
?
$$\begin{array} { l r } 
\text { Direct labor } & \$ 35,000 \
\text { Direct materials } & 20,000 \
\text { Architect fees } & 5,000 \
\text { Interest on construction loan } & 3,000 \
\text { Depreciation of equipment used in construction } & 1,500 \
\text { Indirect Administrative costs during construction } & 2,000
\end{array}$$
What is Tillman's basis in the warehouse?

Accepted Answer

The answer of Tillman is building a warehouse for use...

Question 8

Sanford gives Mitchell 100 shares of stock that cost Sanford $5,000 several years ago. On the date of the gift, the stock is valued at $3,000. Mitchell holds the stock until the value increases and sells it for $4,000. What is Mitchell's recognized gain or loss on the sale?

Accepted Answer

The answer of Sanford gives Mitchell 100 shares of stock...

Question 9

On June 10, 2017, Wilhelm receives a gift of gold coins with a fair market value of $10,000. The gold coins had an adjusted basis of $12,000 to the donor. Wilhelm sells the gold coins August 1, 2018, for $8,000. What is the amount of the recognized gain or loss on the sale?

Accepted Answer

The recognized loss is $2,000, which is the difference between the sale price of $8,000 and the donor's adjusted basis of $12,000.

Question 10

Valerie receives a painting as a gift from her aunt. The painting is valued at $6,000 on the date of the gift. Valerie's aunt's basis in the painting is $13,000. Three years later Valerie sold the painting for $8,000. What is the amount of gain or (loss) recognized by Valerie on the sale?

Accepted Answer

The answer of Valerie receives a painting as a gift...

Question 11

Sandi sells 100 shares of Gray Corporation stock on December 4, 2018. She inherited the stock from Christine, who died on January 30, 2018. The executor of the estate used the primary valuation date. Sandi's holding period for the stock is

Accepted Answer

The holding period for inherited stock is always considered long-term regardless of how long the decedent held the stock. In this case, since Christine died on January 30, 2018, Sandi inherited the stock with a new cost basis of the fair market value on that date. Since Sandi sold the stock on December 4, 2018, which is more than a year after she inherited the stock, the holding period is considered long-term.

Question 12

Lydia purchased a sapphire bracelet for $3,000 while vacationing in Hong Kong during 2006. Lydia gives the bracelet to her daughter Amy when she graduates from college in 2018. The bracelet is appraised at $8,000 on that date. In October 2018, Amy sells the bracelet for $9,000. How is Amy's holding period for the bracelet determined?

Accepted Answer

Amy's holding period for the bracelet includes the time Lydia owned it, because it was a gift and Amy's basis for determining gain is the donor's basis. Since the donor's basis is used, the holding period starts from when the donor acquired the property, which was in 2006.

Question 13

Terry gives Brenda 1,000 shares of stock he had purchased several years ago for $5,000. On the date of the gift, the stock has a fair market value of $4,000. Brenda sells the 1,000 shares for $5,500 one month after the gift, Brenda realizes a

Accepted Answer

Since Terry gifted Brenda the stock, she takes on his cost basis of $5,000. When she sells the stock for $5,500, she realizes a gain of $500. Since she held the stock for over a year, it is considered a long-term capital gain.

Question 14

Sarah purchased a diamond bracelet for $3,000 while vacationing in Hong Kong during 2008. Sarah gives the bracelet to her daughter Amy when she graduates from college in 2018. The bracelet is appraised at $8,000 on that date. In October 2018, Amy sells the bracelet for $9,000. What is the amount of gain Amy should recognize on the sale?

Accepted Answer

The answer of Sarah purchased a diamond bracelet for $3,000...

Question 15

Larry gives Linda 300 shares of stock he had purchased several years ago for $8,000. On the date of the gift, the stock has a fair market value of $6,000. Linda sells the 300 shares for $5,500 one month after the gift, Linda realizes a

Accepted Answer

Linda's basis in the stock is the lower of Larry's original cost ($8,000) or the fair market value at the time of the gift ($6,000). Since she sells it for $5,500, she realizes a $500 short-term capital loss ($6,000 - $5,500).

Question 16

Diane receives a gift of stock from Sue on July 2, 2018, when the stock was trading for $20,000. Sue paid $4,000 for the stock several years ago. Sue pays a gift tax of $500 on the transfer. Diane's basis in the stock is:

Accepted Answer

Diane's basis in the stock is equal to Sue's basis (the donor's basis) at the time of the gift, which is $4,000. However, because Sue paid a gift tax on the transfer, Diane's basis is increased by the amount of the tax, which is $500. Therefore, Diane's basis in the stock is $4,000 + $500 = $4,500.

Question 17

Robert receives a car as a gift from his mother. The car's purchase price was $20,000, and it was used personally prior to the gift. Robert uses the car 80% of the time in his pizza business. The car's value at the date of the gift is $9,000. What is Robert's basis in the car for depreciation purposes?

Accepted Answer

The basis for depreciation of a gift used in business is the lower of the donor's adjusted basis or the fair market value at the time of the gift, adjusted for the percentage of business use. Since the car's value at the time of the gift is $9,000 and it is used 80% for business, Robert's basis for depreciation is $9,000 * 80% = $7,200.

Question 18

Mary inherits an interest in Laser Partnership from her Aunt Lillian during 2018. The fair market value of the interest as of the primary valuation date is $28,000. Aunt Lillian's adjusted basis was $16,000. What is Mary's initial basis and holding period in the partnership interest if she sells the interest seven months after inheriting it?

Accepted Answer

Mary's initial basis in the inherited partnership interest is the fair market value on the date of Aunt Lillian's death, which is $28,000. For inherited property, the holding period is automatically considered long-term, regardless of how long the inheritor actually holds the property before selling it.

Question 19

Sarah gave her granddaughter, Alice, some Eli Lilly Co. stock last year when its fair market value was $25,000. Gift taxes of $4,000 were paid on this transfer. Sarah acquired the stock in 2004 at a cost of $35,000. Alice sold the Eli Lilly stock this year for $32,000. What amount of gain (loss) will Alice recognize from her sale of the stock?

Accepted Answer

The answer of Sarah gave her granddaughter, Alice, some Eli...

Question 20

Rosie inherits 1,000 shares of Northern Skies Airline Corporation stock from the estate of her Uncle Tony. Tony died on July 2, 2018. The stock's value on July 2, 2018, is $4,000. Tony's basis in the stock was $3,000. The stock has a fair market value of $7,000 on October 1, 2018, when it is transferred to her. Rosie sells the stock October 11, 2018. What is Rosie's basis in the stock?

Accepted Answer

Rosie's basis in the inherited stock is the fair market value of the stock on the date of the decedent's death, which is $4,000.

Quiz 9: Acquisitions of Property