CHAPTER 13 PROPERTY TRANSACTIONS: DETERMINATION OF GAIN

1. Neal and his wife Faye reside in Texas, a community property state. Their community property consists of real estate (adjusted basis of $800,000; fair market value of $6 million) and personal property (adjusted basis of $390,000; fair market value of $295,000). Neal dies first and leaves his estate to Faye. What is Faye’s basis in the property after Neal’s death?

a. $800,000 real estate and $295,000 personal property.

b. $800,000 real estate and $390,000 personal property.

c. $3,400,000 real estate and $295,000 personal property.

d. $6,000,000 real estate and $295,000 personal property.

e. None of the above.

2. Robert and Diane, husband and wife, live in Pennsylvania, a common law state. They purchased land as joint tenants in 2010 for $300,000. In 2014, Diane dies and bequeaths her share of the land to Robert. The land has a fair market value of $450,000. What is Robert’s adjusted basis for the land?

a. $300,000.

b. $375,000.

c. $450,000.

d. $750,000.

e. None of the above.

3. Taylor inherited 100 acres of land on the death of his father in 2014. A Federal estate tax return was filed and this land was valued therein at $650,000, its fair market value at the date of the father’s death. The father had originally acquired the land in 1968 for $112,000 and prior to his death he had expended $20,000 on permanent improvements. Determine Taylor’s holding period for the land.

a. Will begin with the date his father acquired the property.

b. Will automatically be long-term.

c. Will begin with the date of his father’s death.

d. Will begin with the date the property is distributed to him.

e. None of the above.

4. Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2014, the date of the decedent’s death. The executor distributes the land to Kelly on November 12, 2014, at which time the fair market value is $49,000. The fair market value on February 4, 2015, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2015, for $48,000. What is her recognized gain or loss?

a. ($1,000).

b. ($2,000).

c. ($47,000).

d. $1,000.

e. None of the above.

5. Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000. What is Arthur’s recognized gain or loss and Ned’s basis in the land?

a. $0 and $105,000.

b. $0 and $145,000.

c. ($40,000) and $105,000.

d. ($40,000) and $145,000.

e. None of the above.

6. Paul sells property with an adjusted basis of $45,000 to his daughter Dean, for $38,000. Dean subsequently sells the property to her brother, Preston, for $38,000. Three years later, Preston sells the property to Hun, an unrelated party, for $50,000. What is Preston’s recognized gain or loss on the sale of the property to Hun?

a. $0.

b. $5,000.

c. $12,000.

d. ($5,000).

e. None of the above.

7. Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1, 2011. In the current tax year (2014), she sells 25 shares of the 100 shares purchased on January 1, 2011, for $2,500. Twenty-five days earlier, she had purchased 30 shares for $3,000. What is Karen’s recognized gain or loss on the sale of the stock, and what is her basis in the 30 shares purchased 25 days earlier?

a. $375 recognized loss, $3,000 basis in new stock.

b. $0 recognized loss, $3,000 basis in new stock.

c. $0 recognized loss, $3,375 basis in new stock.

d. $0 recognized loss, $3,450 basis in new stock.

e. None of the above.

8. Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2010. On January 1, 2014, he sells 125 shares for $5,000. On January 22, 2014, he purchases 135 shares of Eagle Corporation stock for $6,075. When does Andrew’s holding period begin for the 135 shares?

a. January 22, 2014.

b. January 1, 2014.

c. c. March 31, 2010.

d. March 31, 2010, for 125 shares and January 22, 2014, for 10 shares.

e. None of the above.

9. The basis of personal use property converted to business use is:

a. Always the lower of its adjusted basis or fair market value on the date of conversion.

b. Always its adjusted basis on the date of conversion.

c. Always its fair market value on the date of conversion.

d. Always the higher of its adjusted basis or fair market value on the date of conversion.

e. None of the above.

10. Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss?

a. $0.

b. $6,130.

c. $37,630.

d. $69,130.

e. None of the above.

11. Which of the following statements is correct?

a. In a nontaxable exchange in which gain is realized, the transaction results in a permanent recovery of more than the taxpayer’s cost or other basis for tax purposes.

b. In a nontaxable exchange in which loss is realized, the transaction results in a permanent recovery of less than the taxpayer’s cost or other basis for tax purposes.

c. In a tax-free transaction in which gain is realized, the transaction results in the permanent recovery of more than the taxpayer’s cost or other basis for tax purposes.

d. All of the above.

e. None of the above.

12. In order to qualify for like­kind exchange treatment under § 1031, which of the following requirements must be satisfied?

a. The form of the transaction is a sale or exchange.

b. Both the property transferred and the property received are held either for productive use in a trade or business or for investment.

c. The exchange must be completed by the end of the second tax year following the tax year in which the taxpayer relinquishes his or her like-kind property.

d. Only a. and b.

e. a., b., and c.