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Exam 7: Property Transactions: Basis, gain and Loss, and Nontaxable Exchanges

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Question 31

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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

F) All of the above
G) A) and B)

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Question 32

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The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

A) True
B) False

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Question 33

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If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

The holding period for nontaxable stock dividends that are the same type (i.e. ,common on common)includes the holding period of the original shares,but the holding period for nontaxable stock dividends that are not the same type (i.e. ,preferred on common)is new and begins on the date the dividend is received.

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits,the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

When boot in the form of cash is given in a like-kind exchange,recognized gain is the greater of the boot or the realized gain.

In October 2015,Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2005 while Jerry purchased his in 2008.In addition to the realty,Ben receives Pearl,Inc.stock worth $10,000 from Jerry.Ben's realized gain is $30,000.On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?

Milton purchases land and a factory building for his business for $300,000 with $100,000 being allocated to the land.During the first year,Milton deducts cost recovery of $4,922.Milton's adjusted basis for the building at the end of the first year is $195,078 ($200,000 - $4,922).

Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

In 1973,Fran received a birthday gift of stock worth $75,000 from her aunt.The aunt had owned the stock (adjusted basis $50,000)for 10 years and paid 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.

Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Reggie owns all the stock of Amethyst,Inc.(adjusted basis of $100,000).If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000,Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

Which,if any,of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

Wyatt sells his principal residence in December 2015 and qualifies for the § 121 exclusion.He sells another principal residence in November 2016.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

If Wal-Mart stock increases in value during the tax year by $6,000,the amount realized is a positive $6,000.

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the shareholder-recipient's basis in the stock investment is treated as a capital gain.

Tariq sold certain U.S.Government bonds and State of Oregon bonds at a loss to offset short-term capital gain from a previous transaction.He felt that the U.S.Government and State of Oregon bonds were "good" investments,so he repurchased identical securities within one week.Do these transactions constitute wash sales? If the bond sales resulted in the recognition of gain (rather than loss),would the wash sale provisions prevent the gains from being recognized?