Question 1

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's basis in the land is the same as her grandfather's adjusted basis, which is $110,000. Since she sold the land for $80,000, she incurred a capital loss of $30,000 ($80,000 - $110,000 = -$30,000). However, because the land was a gift, Kathleen cannot claim a capital loss on her tax return. Therefore, her gain or (loss) on this transaction is ($5,000), which is the difference between the FMV at the time of the gift and the selling price ($85,000 - $80,000 = $5,000).

Question 2

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 3

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 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 includes the purchase price of $800,000 plus any additional costs incurred to bring the software system into use. Therefore, the basis is $800,000 + $20,000 for installation, $5,000 for training, and $10,000 for customization = $835,000. However, since the regulations allow for up to $15,000 of these additional costs to be expensed, the final basis is $835,000 - $15,000 = $820,000. Therefore, the correct answer is D.

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 calculated by subtracting the basis from the amount received. Realized Gain = Amount Received - Basis. Therefore, the realized gain in this case is $48,000 - $28,000 = $20,000. Choice A is incorrect because there is a realized gain. Choice C is incorrect because the basis is not the same as the amount received. Choice D is incorrect because it only represents the amount received, not the realized gain.

Question 6

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 7

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

Accepted Answer

Painting more than 50% of the rooms in a rental property does not affect the adjusted basis of the property. Adding a new room, installing a new heating system, and taking a depreciation deduction all affect the adjusted basis of the property.

Question 8

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 reluctance of taxpayers to sell appreciated capital assets due to the high capital gains tax rates. This is because selling the asset would trigger a taxable event, and the taxpayer would owe taxes on the gain. If the tax rate is high, the taxpayer may choose to hold onto the asset instead of selling it, even if they would benefit from doing so.

Question 9

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?

Accepted Answer

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

Question 10

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 11

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

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

Question 12

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

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

Question 13

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 14

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

Andrew's basis in the property is calculated by taking the adjusted basis to his uncle and adding any gift tax paid on the property. 
Adjusted basis to uncle = $70,000 
Gift tax paid by uncle = $24,000 
Amount of gift after annual exclusion = $100,000 
To calculate the portion of the gift that is subject to gift tax, we use the formula: 
(Total gift amount - Annual exclusion) / 2 = Taxable gift 
($100,000 - $15,000) / 2 = $42,500 
So, the total value of the property for gift tax purposes is $42,500 + $24,000 = $66,500 
Andrew's basis in the property is therefore $70,000 + ($24,000/ $66,500) x ($114,000 - $70,000) = $80,560.

Question 15

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 16

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 adjusted basis of his aunt at the time of the gift, which is $133,000, plus any gift tax paid on the gift, which is $20,000. This results in a total basis of $153,000. However, because the gift was for $130,000, Don's basis cannot exceed the fair market value of the house at the time of the gift, which is $144,000. Therefore, Don's basis in the house is $144,000.

Question 17

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 18

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 at the end of the two-year period is calculated as follows:
Adjusted basis = cost of equipment - total depreciation deductions + cost of repairs - cost of major overhaul
Adjusted basis = $30,000 - $15,600 + $2,000 - $7,000
Adjusted basis = $9,400 + $21,400
Adjusted basis = $21,400, therefore the correct answer is option C.

Question 19

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 accurate according to the Internal Revenue Service (IRS). When property is received as a gift, the donee's basis in the property is generally the fair market value of the property on the date of the gift. The holding period also starts on the day after the date of the gift.

Question 20

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

The answer of Allison buys equipment and pays cash of...

Quiz 10: Property Transactions: Capital Gains and Losses

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?

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?