Question 1

For each of the following situations,identify the property's adjusted basis and briefly explain how you determined the adjusted basis amount.
a.Mei-ling purchased 150 shares of MAPCO stock for $5,400 in 2000. On February 28, 2013, Mei-ling purchased another lot of 150 shares of identical stock for $3,750. Mei-ling sells the original 150 shares of MAPCO stock for $3,300 on March 15, 2013. What is Mei-ling's basis in the 150 shares she purchased February 28, 2013?
b.Ralph gives Linda 500 shares of Money Maker common stock. The stock cost Ralph $30,000 several years earlier. The stock is worth $50,000 on the date it is given to Linda, and Ralph pays $1,500 of gift tax on the transfer. What is Linda's basis in the stock if she sells it for $20,000?
c.Assume the same facts as in part b, except that the fair market value of the stock on the date of the gift is $25,000.
d.Leon receives a van as a gift from his father. His father's basis in the van is $30,000. The fair market value at the date of the gift is $20,000. A gift tax of $2,000 is paid on the gift. Geroge uses the van in his pizza delivery service for three years, at which time he sells it for $8,000. During the three years he used the van in his business, Geroge deducts $10,000 in depreciation on the van.
e.Bonita owns a house that she used as a residence until this year. She paid $150,000 for the house on November 4, 1992. On April 4, 2013, Bonita purchases a new residence and converts the former residence into office space to use in her real estate business. The former residence is worth $180,000 on April 4, 2013.

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Question 2

Indicate the classification of each of the following assets as personal property,real property,intangible property,personal use property or business use property.
a.A dentist purchases a sofa for the waiting room at his dental office.
b.A dentist purchases a sofa for his living room at home.
c.A dentist has a landscape architect plant shrubbery and trees around his office building.
d.A dentist pays a landscaper to grade his land and install fencing for a baseball practice field for his son.
e.A dentist obtains a patent for a procedure he developed.

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Question 3

Jose is exploring his options to minimize his tax liability for this year.Earlier in the year Jose sold a substantial number of his securities and recognized a $15,000 gain.He would like to mitigate the tax effects of that gain.The remainder of Jose's portfolio consists of 1,000 shares of Garfield Corporation stock.Jose has not sold it because it has a history of paying large dividends.Jose paid $20,000 for the stock,but it is currently trading for $5 per share.Jose is considering selling all of his Garfield stock,realizing the loss,netting it against his capital gains,and then repurchasing 1,000 shares a few days later.He knows he will lose some money due to transaction and brokerage costs,but he feels it may be worth it.Discuss Jose's plan.Relate your analysis to the basic tax concepts that help drive your position.

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Question 4

Terri owns 1,000 shares of Borneo Corporation common stock.On March 31 of the current year,when the stock is trading at $2 per share,Borneo declares a 5% stock dividend with the option to receive $2 cash per dividend share in lieu of taking the dividend shares.The dividend is distributed on April 30.Terri elects to receive the stock shares rather than the cash dividend.What are the tax effects for Terri?
I.Terri's stock dividend is nontaxable.
II.Terri's basis in her new shares is $100.

Accepted Answer

The answer of Terri owns 1,000 shares of Borneo Corporation...

Question 5

Jenny purchased 1,000 shares of Hewlett Corporation preferred stock for $66,000 two years ago.During the current year,Jenny receives a 10% nontaxable stock dividend at a time when the stock has a fair market value of $40.What is Jenny's basis in the stock dividend shares?

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The answer of Jenny purchased 1,000 shares of Hewlett Corporation...

Question 6

Reiko buys 200 shares of Saratoga Corporation common stock on December 10,2012,for $2,000.He buys an additional 200 shares for $1,800 on December 23,2013.On December 28,2013,Reiko sells 100 of the first 200 shares for $800.He sells the remaining 300 shares for $2,500 on November 15,2014.What is(are)the amount(s)and the year of recognition of losses that Reiko can recognize?
$\begin{array}{lrr}
&2013 & 2014 \
\text { a. }&-0- & \$ 300 \
\text { b. } & -0- & \$ 500 \
\text { c. } & \$ 200 & \$ 500 \
\text { d. } & \$ 200 & \$ 300
\end{array}$

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The answer of Reiko buys 200 shares of Saratoga Corporation...

Question 7

On February 3 of the current year,Caroline converts her house to a rental property.Caroline's adjusted basis in the house is $120,000 and the fair market value is $150,000 on the date of conversion.What is Caroline's adjusted basis in the rental property for depreciation purposes?

Accepted Answer

For depreciation purposes, when converting personal property to rental property, the basis is the lower of the adjusted basis or the fair market value at the time of conversion. In this case, Caroline's adjusted basis ($120,000) is lower than the fair market value ($150,000), so her basis for depreciation is $120,000.

Question 8

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.What is Dana's basis for deprecation purposes?

Accepted Answer

When the automobile is converted to business use, its basis for depreciation purposes is the lower of its fair market value at the time of conversion or its original basis. Therefore, in this case, Dana's basis for depreciation purposes would be $19,000.

Question 9

Tony died on April 5,2013.As part of his will,he leaves land that he paid $6,000 for in 1993 to his son Philip.On April 5,2013,the land is worth $11,000.However,due to local real estate conditions,the land continues to decline in value.On July 28 it is worth only $10,000; it declines further to $9,000 on October 5 and plunges to $7,000 on December 18.
I.In the absence of any special elections,Philip's basis in the land is $6,000.
II.If the executor distributes the land to Philip on July 28,Philip's basis in the land will be $10,000.

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The answer of Tony died on April 5,2013.As part of...

Question 10

Melonie purchased 100 shares of Wake Corporation stock for $6 per share on August 3,2011.On December 18,2012,Melonie sells all 100 shares for $4 per share.On January 5,2013,Melonie purchases 50 shares of Wake stock for $5 per share.What is the basis of the 50 shares Melonie holds on January 5,2013?

Accepted Answer

To calculate the basis of the 50 shares Melonie holds on January 5, 2013, we need to take into account the cost basis of the original 100 shares purchased in 2011 and the loss incurred when those shares were sold in 2012.

The cost basis of the original 100 shares is:

$6 per share x 100 shares = $600

When those shares were sold for $4 per share, Melonie incurred a loss of:

($4 per share - $6 per share) x 100 shares = -$200

(Notice that the negative sign indicates a loss)

So, Melonie's total cost basis in Wake Corporation stock up to the point of selling the original 100 shares is:

$600 - $200 = $400

When Melonie purchased 50 shares on January 5, 2013, the basis of those shares is simply the purchase price:

$5 per share x 50 shares = $250

However, we need to remember that Melonie already had a cost basis of $400 in Wake Corporation stock before buying these additional shares. Therefore, the combined basis of all 150 shares is:

$250 + $400 = $650

So, the correct answer is D) $450.

Question 11

Marjorie starts a new consulting business out of her home.She converts her personal computer,which cost $3,400,to business use when it is worth $1,200.Which of the following is correct?
I.The initial basis for determining a gain on the sale of the computer is $1,200.
II.The basis for depreciation purposes is $1,200.

Accepted Answer

Statement I is incorrect because Marjorie did not sell the computer, but rather converted it to business use, so there is no immediate gain or loss to be determined.

Statement II is correct because the basis for depreciation purposes is the lower of the adjusted basis (which includes the original cost) or the fair market value at the time of conversion. In this case, the fair market value was $1,200, so that becomes the basis for determining depreciation.

Question 12

Dustin buys 200 shares of Monroe Corporation common stock on December 1,2012,for $2,000.He buys an additional 200 shares for $1,800 on December 23,2013.On December 28,2013,Dustin sells the first 200 shares for $1,700.He sells the last 200 for $1,600 on June 15,2014.What is (are)the amount(s)and the year of recognition of losses that Dustin can recognize?
$\begin{array}{rrr}
&2013&2014\
a.&-0-&\$200\
b.&-0-&\$500\
c.&\$300&\$200\
d.&\$300&\$500
\end{array}$

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The answer of Dustin buys 200 shares of Monroe Corporation...

Question 13

During 2001,Charles purchased 1,000 shares of Ryan Corporation stock for $12,000.On February 22,2013,he sells all the shares for $9,000.On March 15,2013,he repurchases 1,000 shares of Ryan for $8,000 and holds them until May 29,2013,when he sells them for $10,000.What is Charles' recognized gain or loss on the May 29,2013,sale?

Accepted Answer

Charles sold his original shares in February 2013 for $9,000, resulting in a loss of $3,000 ($9,000 - $12,000). When he repurchased the shares in March 2013 for $8,000, this did not change the amount of his recognized loss. When he sells the repurchased shares in May 2013 for $10,000, he recognizes a gain of $2,000 ($10,000 - $8,000). However, since he had previously recognized a loss of $3,000, his overall recognized gain or loss is a loss of $1,000 ($2,000 - $3,000). Therefore, the correct answer is A) $1,000 loss.

Question 14

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.After a few months of business use,Dana sells the automobile for $18,000.What is the amount of gain or loss recognized on the sale of the automobile?

Accepted Answer

The recognized loss is $1,000, calculated as the difference between the fair market value at the time of conversion to business use ($19,000) and the sale price ($18,000). The loss is recognized because the sale price is less than the value at the time of conversion to business use, not the original purchase price.

Question 15

Kim owns a truck that cost $35,000 several years ago.After using it personally for two years,she converts the truck to business use when the truck's fair market value is $20,000.She uses the truck in her business and appropriately deducts $5,000 in depreciation.Then,she sells the truck for $42,000.What is Kim's recognized gain or loss on the sale?

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The answer of Kim owns a truck that cost $35,000...

Question 16

Mitaya purchased 500 shares of Sundown Inc.,common stock on December 13,2011,at a cost of $3,600.She paid a commission of $150 on the purchase.On February 18,2012,she received 250 shares of Sundown Inc.,common stock as a tax-free dividend.Mitaya sells 600 shares for $3,700 on January 8,2013,and pays a $100 commission on the sale.Mitaya's gain (loss)on the sale is characterized as:

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The answer of Mitaya purchased 500 shares of Sundown Inc.,common...

Question 17

Tony receives an automobile from his uncle,Ned,as a graduation gift.Ned used the vehicle only for commuting to his office during the 3 years he owned it.Ned paid $20,000 for the vehicle.It is valued at $8,000 on the date of the gift.Tony will use the automobile 100% of the time for his business.Determine Tony's basis in the automobile for depreciation purposes.Explain your answer in terms of the concepts of taxation.

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Question 18

Samantha receives 100 shares of Burnet Corporation stock as a gift from her cousin.At the date of the gift the stock is valued at $60 per share.It cost her cousin $10 per share several years before.One month later,Samantha's uncle dies and she inherits 100 shares of Crockett Corporation stock from her uncle's estate.The stock cost her uncle $10 per share twenty-five years ago.On the date of death the stock has a value of $60 per share.Samantha needs money to invest in her business,but she does not need to sell both blocks of stock this year.Which stock would you recommend Samantha to sell?

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Question 19

On February 3 of the current year,Samantha converts her house to a rental property.Samantha's adjusted basis in the house is $150,000 and the fair market value is $120,000 on the date of conversion.Samantha uses the rental for 3 years and properly deducts depreciation totaling $12,000.Then,she sells the house for $130,000.What is the amount of the gain or (loss)recognized on the sale?

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Question 20

Kevin buys one share of Mink,Inc.,common stock for $100.On February 3 of the current year,the corporation makes a nontaxable distribution of one share of preferred stock to all holders of record of common stock.On the distribution date,the common stock is trading at $250 and the preferred stock is trading at $50.After the distribution,Kevin's bases in the two shares of stock are:
$\begin{array}{lr}
&\text { Common } & \text { Freferred } \
\text { a. } &\$ 50.00 & \$ 50.00 \
\text { b. }& \$ 100.00 & \$-0- \
\text { c. } &\$ 83.33 & \$ 16.67 \
\text { d. } &\$ 250.00 & \$ 50.00 \
\text { e. } &\$ 80.00 & \$ 20.00
\end{array}$

Accepted Answer

The answer of Kevin buys one share of Mink,Inc.,common stock...

Quiz 9: Acquisitions of Property

Jenny purchased 1,000 shares of Hewlett Corporation preferred stock for $66,000 two years ago.During the current year,Jenny receives a 10% nontaxable stock dividend at a time when the stock has a fair market value of $40.What is Jenny's basis in the stock dividend shares?

On February 3 of the current year,Caroline converts her house to a rental property.Caroline's adjusted basis in the house is $120,000 and the fair market value is $150,000 on the date of conversion.What is Caroline's adjusted basis in the rental property for depreciation purposes?

Dana purchases an automobile for personal use for $27,000.After using it for three years,Dana converts the automobile to business use when the fair market value is $19,000.What is Dana's basis for deprecation purposes?

Melonie purchased 100 shares of Wake Corporation stock for $6 per share on August 3,2011.On December 18,2012,Melonie sells all 100 shares for $4 per share.On January 5,2013,Melonie purchases 50 shares of Wake stock for $5 per share.What is the basis of the 50 shares Melonie holds on January 5,2013?