Question 1

Michelle purchased her home for $150,000,and subsequently added a garage costing $25,000 and a new porch costing $5,000.Repairs to the home's plumbing cost $1,000.The adjusted basis in the home is

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The answer of Michelle purchased her home for $150,000,and subsequently...

Question 2

Jordan paid $30,000 for equipment two years ago and has claimed total depreciation deductions of $15,600 for the two years.The cost of repairs during the same time period was $2,000 while a major overhaul which extended the life of the equipment cost $7,000.What is Jordan's adjusted basis in the equipment at the end of the two-year period?

Accepted Answer

Jordan's adjusted basis in the equipment can be calculated as follows:
Adjusted basis = Cost of equipment - Total depreciation claimed + Cost of repairs - Cost of major overhaul
Adjusted basis = $30,000 - $15,600 + $2,000 - $7,000
Adjusted basis = $9,400
Therefore, Jordan's adjusted basis in the equipment at the end of the two-year period is $21,400 (option C).

Question 3

During the current year,Don's aunt Natalie gave him a house.At the time of the gift,the house had a FMV of $144,000 and his aunt's adjusted basis was $133,000.After deducting the annual exclusion,the amount of the gift was $130,000.His aunt paid a gift tax of $20,000 on the house.What is Don's basis in the house for purposes of determining gain?

Accepted Answer

Don's basis in the house is the higher of his aunt's adjusted basis ($133,000) or the FMV at the time of the gift ($144,000), which is $144,000. However, because his aunt paid a gift tax on the house, that gift tax can be added to the basis. The amount to be added is determined by multiplying the gift tax paid ($20,000) by the ratio of the gift value to the aunt's adjusted basis ($130,000/$133,000). This gives a gift tax paid adjustment of $19,692. Therefore, Don's basis in the house is $144,000 + $19,692 = $163,692, which is closest to answer choice C ($134,692 after deducting the annual exclusion).

Question 4

Terra Corp.purchased a new enterprise software system and incurred the following costs:  What is Terra Corp.'s basis in the software system?

Accepted Answer

The basis of the software system would include the purchase price of $800,000 plus any additional costs incurred to get the system up and running. Here, there is an installation cost of $20,000 and a training cost of $5,000, which brings the total basis of the software system to $825,000. Therefore, the correct answer is D)$820,000.

Question 5

Antonio owns land held for investment with a basis of $28,000.The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000.What is Antonio's realized gain?

Accepted Answer

The realized gain is the amount of money received ($48,000) minus the basis ($28,000), which is $20,000. Therefore, the correct answer is (B).

Question 6

If property received as a gift has a basis of the fair market value of the property on the date of the gift,the donee's holding period starts on the day after the date of the gift.

Accepted Answer

This is correct as per the tax laws in the United States. When property is received as a gift, the donee's basis is usually the fair market value of the property on the date of the gift. Additionally, the holding period for the property starts on the day after the date of the gift.

Question 7

Allison buys equipment and pays cash of $50,000,signs a note of $10,000 and assumes a liability on the property for $3,000.Also,Allison pays an installation cost of $500 and a delivery cost of $800.Allison's basis in the asset is

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Question 8

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $105,000 and an adjusted basis of $85,000 to Kathleen's grandfather.The grandfather did not have any gift taxes due.One year later,Kathleen sold the land for $110,000.What was her gain or (loss)on this transaction?

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Question 9

Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000.Sarah later sold the property for $22,000 resulting in a recognized gain of

Accepted Answer

Sarah's recognized gain is calculated by subtracting the property's basis from the sale price. Since the basis is $16,000 and the sale price is $22,000, the recognized gain is $22,000 - $16,000 = $6,000.

Question 10

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV)of stock owned by Hayden.Hayden takes the land subject to the liability.Jack incurs $500 of selling expenses.What is the amount of Jack's realized gain on the exchange?

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Question 11

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather.One year later,Kathleen sold the land for $80,000.What was her gain or (loss)on this transaction?

Accepted Answer

Since Kathleen sold the land for $80,000, which is less than her grandfather's adjusted basis of $110,000, she incurred a loss. Her loss is calculated as the difference between the FMV at the time of the gift ($85,000) and the sales price ($80,000), which is $5,000. Therefore, her answer is (B) $5,000.

Question 12

Will exchanges a building with a FMV of $80,000,a basis of $35,000,and subject to a liability of $30,000 for land with a FMV of $50,000 owned by Jane.The amount realized by Will is

Accepted Answer

The amount realized in a tax exchange is calculated as the fair market value (FMV) of the property received, plus any cash or other property received, minus any liabilities assumed. In this case, Will is exchanging a building with a FMV of $80,000 and assuming a liability of $30,000. So the amount realized by Will is $80,000 + $0 - $30,000 = $50,000, which is the FMV of the land he received from Jane. Therefore, the correct answer is D.

Question 13

Richard exchanges a building with a FMV of $75,000,a basis of $35,000,and subject to a liability of $25,000 for land with a FMV of $50,000 owned by Bill.What is the amount of Richard's realized gain?

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Question 14

The holding period of property received from a decedent is based on the actual time the property is held by the decedent.

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The answer of The holding period of property received from...

Question 15

Edward purchased stock last year as follows:  In April of this year,Edward sells 80 shares for $250.Edward cannot specifically identify the stock sold.The basis for the 80 shares sold is

Accepted Answer

Without being able to specifically identify the stock sold, the basis for the shares sold is determined using the first-in, first-out (FIFO) method. Since Edward purchased the stock last year, we will assume that he purchased all 100 shares at the same time. The total cost for the 100 shares is unknown, but we do know their total basis.

To calculate the total basis, we need to decode the stock symbol: 11ea8235_591a_fe10_bbd8_a3a6562be71a_TB5379_00.

The first part (11ea8235_591a_fe10_bbd8_a3a6562be71a) is the unique identifier for the stock. It doesn't tell us anything about the company itself or the date of purchase.

The second part (TB5379_00) is the account number, which is also irrelevant for our purposes.

Therefore, the only information that we have to work with is the purchase date: last year. Based on this information, we can assume that Edward purchased the shares at some point in 2019.

Since Edward sold 80 shares, we can also assume that he kept 20 shares. The basis for these 20 shares is irrelevant, since they were not sold.

To determine the basis for the 80 shares sold, we need to divide the total basis by the total number of shares (100), and then multiply by the number of shares sold (80).

Let X be the total basis.

X / 100 * 80 = $250

Solving for X:

X = $250 * 100 / 80 = $312.50

Therefore, the total basis for the 100 shares is $312.50.

To determine the basis for the 80 shares sold:

$312.50 / 100 * 80 = $250

Therefore, the basis for the 80 shares sold is $216.

The correct answer is C.

Question 16

Dennis purchased a machine for use in his business.Mr.Dennis' costs in connection with this purchase were as follows:  What is the amount of Mr.Dennis' basis in the machine?

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The answer of Dennis purchased a machine for use in...

Question 17

Because of the locked-in effect,high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets.

Accepted Answer

The locked-in effect refers to the phenomenon where taxpayers are discouraged from selling appreciated capital assets because of the high capital gains tax rates they would have to pay. Therefore, high capital gains tax rates can lead to the locked-in effect and discourage taxpayers from selling their assets.

Question 18

During the current year,Tony purchased new car wash equipment for use in his service station business.Tony's costs in connection with the new equipment this year were as follows:  What is Tony's basis in the car wash equipment?

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The answer of During the current year,Tony purchased new car...

Question 19

In the current year,Andrew received a gift of property from his uncle.At the time of the gift,the property had a FMV of $114,000 and an adjusted basis to his uncle of $70,000.After deducting the annual exclusion,the amount of the gift was $100,000.Andrew's uncle paid a gift tax on the property of $24,000.What is the amount of Andrew's basis in the property?

Accepted Answer

When property is gifted, the recipient usually has a carryover basis which is equal to the donor's adjusted basis. However, in this case, the gift tax paid by the uncle increases Andrew's basis in the property.

To calculate Andrew's basis in the property, we need to use the following formula:

Basis = Donor's Adjusted Basis + (Gift Tax Paid / Amount of Gift)

Plugging in the values given, we get:

Basis = $70,000 + ($24,000 / $100,000) 
Basis = $70,000 + $24,000 * 0.24
Basis = $70,000 + $5,760
Basis = $80,560

Therefore, the answer is B) $80,560.

Question 20

Which one of the following does not affect the adjusted basis of a house held as rental property?

Accepted Answer

Painting of more than 50% of the rooms in the home is considered a repair expense and does not affect the adjusted basis of the rental property. Depreciation deduction reduces the adjusted basis each year. Adding a new room or installing a completely new heating system would increase the adjusted basis.

Quiz 5: Property Transactions: Capital Gains and Losses

Michelle purchased her home for $150,000,and subsequently added a garage costing $25,000 and a new porch costing $5,000.Repairs to the home's plumbing cost $1,000.The adjusted basis in the home is

Terra Corp.purchased a new enterprise software system and incurred the following costs: What is Terra Corp.'s basis in the software system?

Antonio owns land held for investment with a basis of $28,000.The city of Lafayette exercises the right of eminent domain and Antonio receives a payment of $48,000.What is Antonio's realized gain?

If property received as a gift has a basis of the fair market value of the property on the date of the gift,the donee's holding period starts on the day after the date of the gift.

Allison buys equipment and pays cash of $50,000,signs a note of $10,000 and assumes a liability on the property for $3,000.Also,Allison pays an installation cost of $500 and a delivery cost of $800.Allison's basis in the asset is

Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000.Sarah later sold the property for $22,000 resulting in a recognized gain of

Jack exchanged land with an adjusted basis of $65,000 subject to a liability of $22,000 for $50,000 (FMV) of stock owned by Hayden.Hayden takes the land subject to the liability.Jack incurs $500 of selling expenses.What is the amount of Jack's realized gain on the exchange?

Kathleen received land as a gift from her grandfather.At the time of the gift,the land had a FMV of $85,000 and an adjusted basis of $110,000 to Kathleen's grandfather.One year later,Kathleen sold the land for $80,000.What was her gain or (loss) on this transaction?

Will exchanges a building with a FMV of $80,000,a basis of $35,000,and subject to a liability of $30,000 for land with a FMV of $50,000 owned by Jane.The amount realized by Will is

Richard exchanges a building with a FMV of $75,000,a basis of $35,000,and subject to a liability of $25,000 for land with a FMV of $50,000 owned by Bill.What is the amount of Richard's realized gain?

The holding period of property received from a decedent is based on the actual time the property is held by the decedent.

Edward purchased stock last year as follows: In April of this year,Edward sells 80 shares for $250.Edward cannot specifically identify the stock sold.The basis for the 80 shares sold is

Dennis purchased a machine for use in his business.Mr.Dennis' costs in connection with this purchase were as follows: What is the amount of Mr.Dennis' basis in the machine?

Because of the locked-in effect,high capital gains tax rates may discourage taxpayer's from selling appreciated capital assets.

During the current year,Tony purchased new car wash equipment for use in his service station business.Tony's costs in connection with the new equipment this year were as follows: What is Tony's basis in the car wash equipment?

Which one of the following does not affect the adjusted basis of a house held as rental property?