CHAPTER 13 PROPERTY TRANSACTIONS: DETERMINATION OF GAIN

1. Mike’s basis in his stock in Tan Corporation is $75,000. He receives nontaxable stock rights (fair market value of

$20,000) when the value of the stock is $100,000. What is the basis for the stock rights?

a. $0.

b. $12,500.

c. $15,000.

d. The basis is $0 unless the taxpayer elects to allocate a portion of the cost of the stock to the rights.

e. None of the above.

2. Which of the following statements is correct?

a. Under no circumstances does part of the stock basis have to be allocated to nontaxable stock rights.

b. If the fair market value of stock rights is equal to at least 15% of the fair market value of the stock, part of the stock basis must be allocated to nontaxable stock rights.

c. An election may be made to allocate part of the stock basis to nontaxable stock rights only if the fair market value of the nontaxable stock rights is at least 15% of the fair market value of the stock.

d. Only b. and c. are correct.

e. Only a. and c. are correct.

3. In 2010, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2014. At this time, the fair market value of the car has declined to $10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with out­of­pocket costs of $5,000. She later sells the car for $30,000. What is Julia’s recognized gain or loss on the sale of the car?

a. $0.

b. $13,000.

c. $15,000.

d. $18,000.

e. None of the above.

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4. Ralph gives his daughter, Angela, stock (basis of $8,000; fair market value of $6,000). No gift tax results. If Angela subsequently sells the stock for $10,000, what is her recognized gain or loss?

a. $0.

b. $2,000.

c. $4,000.

d. $10,000.

e. None of the above.

5. Gift property (disregarding any adjustment for gift tax paid by the donor):

a. Has no basis to the donee because he or she did not pay anything for the property.

b. Has the same basis to the donee as the donor’s adjusted basis if the donee disposes of the property at a gain.

c. Has the same basis to the donee as the donor’s adjusted basis if the donee disposes of the property at a loss, and the fair market value on the date of gift was less than the donor’s adjusted basis.

d. Has no basis to the donee if the fair market value on the date of gift is less than the donor’s adjusted basis.

e. None of the above.

6. Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $35,000 on the date of gift. No gift tax was paid by the donor. Shontelle subsequently sold the property for $31,000. What is the recognized gain or loss?

a. $0.

b. ($4,000).

c. ($10,000).

d. ($18,000).

e. None of the above.

7. In addition to other gifts, Megan made a gift of stock to Jeri in 1976. Megan had purchased the stock in 1974 for $7,500. At the time of the gift, the stock was worth $20,000. If Megan paid $850 of gift tax on the transaction in 1976, what is Jeri’s gain basis for the stock?

a. $7,500.

b. $8,350.

c. $9,017.

d. $20,000.

e. None of the above.

8. Noelle received dining room furniture as a gift from her friend, Jane. Jane’s adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

a. $0.

b. ($500).

c. ($2,700).

d. $6,500.

e. None of the above.

9. The holding period of property acquired by gift may begin on:

a. The date the property was acquired by the donor only.

b. The date of gift only.

c. Either the date the property was acquired by the donor or the date of gift.

d. The last day of the tax year in which the property was originally acquired by the donor.

e. None of the above.

10. Nancy gives her niece a crane to use in her business with a fair market value of $61,000 and a basis in Nancy’s hands of $80,000. No gift tax was paid. What is the niece’s basis for depreciation (cost recovery)?

a. $0.

b. $19,000.

c. $61,000.

d. $80,000.

e. None of the above.

11. Which of the following is correct?

a. The gain basis for property received by gift is the lesser of the donor’s adjusted basis or the fair market value on the date of the gift.

b. The loss basis for property received by gift is the same as the donor’s basis.

c. The gain basis for inherited property is the same as the decedent’s basis.

d. The loss basis for inherited property is the lesser of the decedent’s basis or the fair market value on the date of the decedent’s death.

e. None of the above.

12. Tobin inherited 100 acres of land on the death of his father in 2014. A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death). The father had originally acquired the land in 1971 for $19,000 and prior to his death had made permanent improvements of $6,000. What is Tobin’s basis in the land?

a. $19,000.

b. $25,000.

c. $300,000.

d. $325,000.

e. None of the above.