Question 1

If the alternate valuation date is elected by the executor in 2013,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 can result in a lower basis if the value of the property decreases between the date of death and the alternate valuation date.

Question 2

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

If the fair market value of the property is greater on the date of death, the executor has the option to use either the date of death value or the alternate valuation date value. It is not mandatory to use the alternate valuation date value.

Question 3

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 4

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes.When the SUV is worth $30,000,he contributes it to his business.The gain basis is $45,000,the loss basis is $30,000,and the basis for cost recovery is $45,000.

Accepted Answer

The loss basis should be the lower of the cost basis or the fair market value at the time of contribution, which in this case is $30,000. Therefore, the loss basis is $30,000, not $45,000.

Question 5

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.

Accepted Answer

This is known as the "wash sale" rule and is designed to prevent taxpayers from realizing losses on stock sales only to immediately repurchase the same stock at a lower price. The disallowed losses can be added to the basis of the newly acquired stock.

Question 6

Ben sells stock (adjusted basis of $25,000)to his son,Ray,for its fair market value of $15,000.Ray gives the stock to his daughter,Trish,who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

Accepted Answer

Ben's recognized loss would actually be $10,000 ($25,000 - $15,000) as he sold the stock for less than his adjusted basis. Trish's recognized gain would still be $1,000, but the statement incorrectly states that Ben has no recognized loss.

Question 7

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 8

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.

Accepted Answer

The answer of The holding period for nontaxable stock dividends...

Question 9

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

Accepted Answer

This statement is true. Under the wash sale rule, if a taxpayer sells a security at a loss and then acquires a substantially identical security within 30 days before or after the sale, the loss is disallowed and added to the basis of the newly acquired security. The basis of the newly acquired security is therefore its cost plus the disallowed loss.

Question 10

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

Accepted Answer

This statement is true. The basis for depreciation on depreciable gift property received is determined by the donor's adjusted basis of the property at the date of the gift, regardless of the fair market value at the time of the gift. However, if gift taxes are paid, the basis may be adjusted.

Question 11

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

Accepted Answer

This is known as the "stepped-up basis" rule, where the basis of inherited property is equal to its fair market value on the date of the decedent's death, rather than the original purchase price.

Question 12

Parker bought a brand new Ferrari on January 1,2013,for $125,000.Parker was fatally injured in an auto accident on June 23,2013,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 January 1,2013.

Accepted Answer

Ryan's holding period for the Ferrari begins on the date of Parker's death, June 23, 2013, not January 1, 2013.

Question 13

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 included in the loss disallowance provision under § 267.

Question 14

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 15

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

Accepted Answer

When transactions between related parties result in disallowed losses, the related party buyer may be able to use them to offset future gains, resulting in a tax benefit. This is commonly known as a "wash sale" and is subject to certain restrictions and limitations under tax laws.

Question 16

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

Accepted Answer

According to the current tax laws, if a donor gives a gift of property to a donee, the donee's basis in the property is the same as the donor's adjusted basis at the time of the gift, unless the fair market value of the property is lower than the donor's adjusted basis. If the fair market value is lower, the donee's basis is the lower value. However, if the donor dies and the property passes to the donee through inheritance, the donee's basis is the fair market value of the property at the time of the donor's death, which could be higher than the donor's adjusted basis. This is known as the carryover basis.

Question 17

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

Accepted Answer

Lump-sum purchases of land and a building are typically allocated based on the relative fair market values of each component asset acquired. This is done to accurately reflect the true value of each component, as it may be possible for the land and building to have significantly different values.

Question 18

In 2013,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 the donor's adjusted basis ($50,000) plus a portion of the gift tax attributable to the appreciation, which is $9,000 ($27,000 * ($25,000 appreciation / $75,000 FMV)), making her basis $59,000, not $75,000.

Question 19

If property that has been converted from personal use to business use has appreciated in value,its basis for gain will be the same as the basis for loss.

Accepted Answer

According to tax law, when property is converted from personal use to business use, the basis for gain is calculated using the lower of the property's adjusted basis or fair market value at the time of conversion. The basis for loss is also calculated using this same amount. Therefore, if the property has appreciated in value, the basis for gain and loss will both be the same.

Question 20

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 time of the gift, the loss basis will be the same as the gain basis (zero). If the fair market value exceeds the adjusted basis, then the loss basis will differ from the gain basis.

Quiz 7: Property Transactions: Basis, gain and Loss, and Nontaxable Exchange