Question 1

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the recipient's stock basis is treated as an ordinary gain.

Accepted Answer

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the recipient's stock basis is treated as a capital gain, not an ordinary gain.

Question 2

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

Accepted Answer

The fair market value is determined by what a willing buyer and a willing seller agree to when neither is under any compulsion to complete the transaction.

Question 3

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Accepted Answer

When a realized gain's recognition is postponed, either through deferral or exclusion, it may result in the temporary recovery of more than the taxpayer's cost or other basis. This is because the taxpayer has not yet paid taxes on the gain, which would reduce the amount of the gain left over.

Question 4

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

Accepted Answer

When an amortization election is made for a taxable bond purchased at a premium, the adjusted basis is reduced by the amount of premium amortized. This amortized premium is treated as an interest deduction. Therefore, the statement is true.

Question 5

If a seller assumes the buyer's liability on the property acquired, the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Accepted Answer

The answer of If a seller assumes the buyer's liability...

Question 6

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits, the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

Accepted Answer

If the distribution is less than the amount of corporate earnings and profits, it is not considered a taxable distribution and does not affect the shareholders' adjusted basis for the stock. Therefore, the return of capital concept does not apply.

Question 7

The amount received for a utility easement on land is included in the gross income of the taxpayer.

Accepted Answer

The answer of The amount received for a utility easement...

Question 8

Reggie owns all the stock of Amethyst, Inc.(adjusted basis of $80,000).If he receives a distribution from Amethyst of $70,000 and corporate earnings and profits are $18,000, Reggie has a capital gain of $8,000 and an adjusted basis for his Amethyst stock of $0.

Accepted Answer

Reggie would first reduce his stock basis by the distribution amount. The distribution is not a capital gain unless it exceeds both the earnings and profits and the adjusted basis. Here, the distribution does not exceed the adjusted basis, so there is no capital gain. The adjusted basis would be reduced by the distribution amount, resulting in a new basis of $10,000 ($80,000 - $70,000).

Question 9

Jesse purchases land and an office building for his business for $200,000 with $50,000 being allocated to the land.During the first year, Jesse deducts cost recovery of $3,050.Jesse's adjusted basis for the building at the end of the first year is $146,950 ($150,000 - $3,050).

Accepted Answer

The calculation is correct. Jesse's adjusted basis for the building at the end of the first year is $150,000 (original cost) minus $3,050 (cost recovery) which equals $146,950.

Question 10

Molanda sells a parcel of land for $25,000 in cash and the buyer assumes Molanda's mortgage of $20,000 on the land.Molanda's amount realized is $45,000.

Accepted Answer

Molanda's amount realized includes the cash received and the assumed mortgage, which adds up to $45,000 ($25,000 + $20,000 = $45,000).

Question 11

A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

Accepted Answer

According to IRS rules, a realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

Question 12

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain or recognized loss.

Accepted Answer

When insurance proceeds are received for property used in a trade or business, the amount of the proceeds may exceed the adjusted basis of the property. If this occurs, a recognized gain can result. On the other hand, if the insurance proceeds are less than the adjusted basis of the property, a recognized loss can result.

Question 13

If the buyer assumes the seller's liability on the property acquired, the seller's amount realized is decreased by the amount of the liability assumed.

Accepted Answer

The seller's amount realized is increased by the amount of the liability assumed by the buyer, as it effectively adds to the total consideration received for the property.

Question 14

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800, she has amortized $300 of the premium.Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

Accepted Answer

Helen's recognized gain would be $100, not $800. The adjusted basis of the bond would be $10,700 ($10,000 purchase price + $1,000 premium - $300 amortized premium), making the gain $100 ($10,800 sale price - $10,700 adjusted basis).

Question 15

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Accepted Answer

Expenditures made for ordinary repairs and maintenance are not considered capital expenditures and are not added to the original basis in the determination of the adjusted basis.

Question 16

The adjusted basis of property that is stolen is reduced by the amount of insurance proceeds received and by any recognized loss.

Accepted Answer

When property is stolen, the adjusted basis of the stolen property is reduced by any insurance proceeds received and by any recognized loss. This is because the insurance proceeds and recognized loss are considered to be a recovery or reimbursement of some of the cost or value of the stolen property.

Question 17

Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000, his adjusted basis for the delivery truck after the accident is $21,000.

Accepted Answer

The answer of Monroe's delivery truck is damaged in an...

Question 18

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Accepted Answer

This statement is true. The realized gain or loss is calculated by subtracting the adjusted basis of the property from the amount realized from the sale or disposition of the property.

Question 19

If Wal-Mart stock increases in value during the tax year by $4,500, the amount realized is a positive $4,500.

Accepted Answer

The amount realized refers to the total amount received from a sale or exchange, not just an increase in value. An increase in stock value alone does not constitute an amount realized unless the stock is sold.

Question 20

A realized loss whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Accepted Answer

A realized loss whose recognition is postponed does not result in the recovery of more than the taxpayer's cost or other basis; it merely delays the recognition of the loss for tax purposes, not allowing for any recovery beyond the original investment.

Quiz 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1