Question 1

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 true according to IRS Publication 551.

Question 2

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?

Accepted Answer

The answer of Kathleen received land as a gift from...

Question 3

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

Accepted Answer

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

Question 4

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?

Accepted Answer

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

Question 5

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?

Accepted Answer

Tony's basis in the car wash equipment includes the purchased price ($50,000), installation costs ($1,000), and sales tax ($1,600), which equals $52,600. Therefore, option C is the correct choice.

Question 6

The gain or loss on an asset purchased on March 31,2013,and sold on March 31,2014,is classified as short-term.

Accepted Answer

The holding period for a short-term capital gain or loss is one year or less, so buying an asset on March 31, 2013, and selling it on March 31, 2014, would result in a short-term gain or loss.

Question 7

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?

Accepted Answer

The answer of Jack exchanged land with an adjusted basis...

Question 8

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

The adjusted basis is the original cost of the equipment ($30,000), minus the depreciation claimed ($15,600) plus any capital improvements (in this case, the major overhaul for $7,000) minus any deductible repairs ($2,000).
Adjusted Basis = $30,000 - $15,600 + $7,000 - $2,000 = $21,400. Therefore, the answer is C.

Question 9

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

Accepted Answer

Allison's basis in the asset includes all costs incurred to acquire the asset and prepare it for use. This includes the cash paid ($50,000), the note signed ($10,000), the assumed liability ($3,000), the installation cost ($500), and the delivery cost ($800). Adding these amounts gives a total basis of $64,300.

Question 10

Dale gave property with a basis of $16,000 to Sarah when it had a FMV of $12,000.No gift taxes were due. Sarah later sold the property for $22,000 resulting in a recognized gain of

Accepted Answer

The answer of Dale gave property with a basis of...

Question 11

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

Accepted Answer

The answer of Will exchanges a building with a basis...

Question 12

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

Kathleen received the land as a gift, so her basis is the same as her grandfather's adjusted basis of $110,000. When she sells the land for $80,000, she has a loss of $30,000 ($80,000 - $110,000). However, since the FMV of the land was only $85,000 at the time of the gift, Kathleen's basis is reduced to $85,000 for calculating any loss on the sale. Therefore, her loss on the sale is only $5,000 ($80,000 - $85,000), which is option B.

Question 13

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 answer of Terra Corp.purchased a new enterprise software system...

Question 14

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 investors are hesitant to sell an asset due to the tax consequences of realizing a capital gain. High capital gains tax rates can increase this effect and discourage taxpayers from selling appreciated capital assets.

Question 15

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 does not affect the adjusted basis of a house held as rental property. The other options listed (depreciation deduction, adding a new room to the house, installation of a completely new heating system) all impact the adjusted basis of the property.

Question 16

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

Antonio's realized gain is the amount of money he received ($48,000) minus his basis ($28,000), which equals $20,000. Therefore, the correct choice is B.

Question 17

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

The answer of Edward purchased stock last year as follows:...

Question 18

Empire Corporation purchased an office building for $500,000 cash on April 1.Prior to renting it out to tenants on July 1,Empire spent $200,000 on materials and labor to renovate the property.It funded $50,000 of the renovation cost with its own funds and borrowed the remaining $150,000.As of July 1,$2,000 of interest had been paid to the bank,but none of the principal had been repaid.The basis of the building on July 1 is

Accepted Answer

The basis of the building on July 1 is the initial purchase price of $500,000 plus the cost of renovations, which is $200,000. Therefore, the total basis is $700,000. The fact that some of the renovation cost was funded by a loan does not affect the basis. The $2,000 of interest paid is also not relevant to determining the basis.

Question 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

The answer of Richard exchanges a building with a basis...

Quiz 10: Property Transactions: Capital Gains and Losses

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.

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

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?

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?

The gain or loss on an asset purchased on March 31,2013,and sold on March 31,2014,is classified as short-term.

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?