Question 1

Lump-sum purchases of land and a building are allocated on the basis of the relative fair market values of the individual assets acquired.

Accepted Answer

Lump-sum purchases are allocated on the basis of the relative fair market values of the assets acquired, which means that the value of the land and building will be allocated proportionally based on their respective market values. This approach is necessary in order to accurately record the cost of each individual asset for accounting and reporting purposes.

Question 2

The holding period for property acquired by gift is automatically long term.

Accepted Answer

The holding period for property acquired by gift includes the time the property was held by the donor, not automatically making it long-term. It depends on the combined holding period of the donor and the recipient.

Question 3

The basis of property acquired in a wash sale is its cost plus the loss not recognized on the wash sale.

Accepted Answer

This is true according to IRS regulations. When a wash sale occurs, the loss from the sale is not recognized for tax purposes, and instead the basis of the property is adjusted to include the disallowed loss amount. This means that when the re-acquired property is sold again in the future, the disallowed loss from the wash sale will be accounted for in the calculation of the gain or loss on the sale.

Question 4

Ben sells stock (adjusted basis of $25,000)to his son,Ray,for its fair market value of $15,000.Ray gives the stock to his daughter,Trish,who subsequently sells it for $26,000.Ben's recognized loss is $0 and Trish's recognized gain is $1,000 ($26,000 - $15,000 - $10,000).

Accepted Answer

Ben's recognized loss would actually be $10,000 ($25,000 - $15,000) as he sold the stock for less than his adjusted basis. Trish's recognized gain would still be $1,000, but the statement incorrectly states that Ben has no recognized loss.

Question 5

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

Accepted Answer

The carryover basis to a donee is the same as the donor's adjusted basis or the fair market value of the property at the time of the gift, whichever is less. In some cases, if the fair market value is greater than the donor's adjusted basis, the carryover basis to the donee will be higher than the donor's adjusted basis.

Question 6

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.

Accepted Answer

This is known as the wash-sale rule and it disallows the realized losses if substantially identical stock is acquired within 30 days before or after the sale.

Question 7

Gene purchased an SUV for $45,000 which he uses 100% for personal purposes.When the SUV is worth $30,000,he contributes it to his business.The gain basis is $45,000,the loss basis is $30,000,and the basis for cost recovery is $45,000.

Accepted Answer

The gain basis would be $30,000, as that is the fair market value when it is contributed to the business. The loss basis would also be $30,000. The basis for cost recovery would be the same as the original purchase price, which is $45,000.

Question 8

The holding period for nontaxable stock dividends that are the same type (i.e. ,common on common)includes the holding period of the original shares,but the holding period for nontaxable stock dividends that are not the same type (i.e. ,preferred on common)is new and begins on the date the dividend is received.

Accepted Answer

The answer of The holding period for nontaxable stock dividends...

Question 9

In 1973,Fran received a birthday gift of stock worth $75,000 from her aunt.The aunt had owned the stock (adjusted basis $50,000)for 10 years and paid gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

Accepted Answer

Fran's basis in the stock is the lesser of her aunt's adjusted basis ($50,000) or the fair market value at the time of the gift ($75,000), which is $50,000. Fran does not have to pay any gift tax, as gift tax is paid by the donor, not the recipient.

Question 10

If losses are disallowed in a related party transaction,the holding period for the buyer includes the holding period of the seller.

Accepted Answer

In a related-party transaction where losses are disallowed, the holding period for the buyer does not include the holding period of the seller. The holding period starts anew with the buyer.

Question 11

The basis for gain and loss of personal use property converted to business use is the lower of the adjusted basis or the fair market value on the date of conversion.

Accepted Answer

The answer of The basis for gain and loss of...

Question 12

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

Accepted Answer

If the related party buyer recognizes a gain in a subsequent transaction or sells the property to an unrelated party at a higher price, they may be able to use the previously disallowed losses to offset those gains and reduce the tax liability.

Question 13

If the alternate valuation date is elected by the executor in 2015,the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Accepted Answer

The answer of If the alternate valuation date is elected...

Question 14

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Accepted Answer

The fair market value on the date of the decedent's death is commonly used as the basis for inherited property for tax purposes.

Question 15

If property that has been converted from personal use to business use has appreciated in value,its basis for gain will be the same as the basis for loss.

Accepted Answer

According to IRS rules, if property is converted from personal use to business use, the basis for gain or loss is the lesser of the property's fair market value on the conversion date or its original cost basis. Therefore, the basis for gain and the basis for loss will be the same.

Question 16

For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e. ,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e. ,greater than 50% of the capital interests or profits interest in the partnership).

Accepted Answer

The statement is true.

Question 17

If the fair market value of the property on the date of death is greater than on the alternate valuation date,the use of the alternate valuation amount is mandatory.

Accepted Answer

The use of the alternate valuation date is optional if the fair market value on that date is lower than the date of death. If the fair market value is higher on the alternate valuation date, the executor may choose to use that value instead, but it is not mandatory.

Question 18

Parker bought a brand new Ferrari on January 1,2015,for $125,000.Parker was fatally injured in an auto accident on June 23,2015,when the fair market value of the car was $105,000.Parker was driving a loaner car from the Ferrari dealership while his car was being serviced.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on January 1,2015.

Accepted Answer

The answer of Parker bought a brand new Ferrari on...

Question 19

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

Accepted Answer

The statement is true. The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift, as per IRS regulations.

Question 20

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Accepted Answer

If the adjusted basis of the property is higher than its fair market value at the date of the gift, the loss basis will be higher, as it will be limited to the property's fair market value at the date of the gift, while the gain basis will be the same as the adjusted basis of the property at the time of the gift.

Quiz 7: Property Transactions: Basis, gain and Loss, and Nontaxable Exchanges