Deck 14: Property Transactions: Basis Determination and Recognition of Gain or Loss

Question 1

Gain or loss is realized when property other than cash is transferred to a creditor in satisfaction of a debt obligation.

Answer 1

True

Question 2

A deferred gain resulting from a nontaxable exchange of property represents an increase in basis.

Answer 2

False

Question 3

The recipient of a property that is transferred part as a gift and part as a sale acquires a basis in the property that is the lesser of the basis under the gift rules or the purchase (i.e., cost) basis.

Answer 3

False

Question 4

Allowable depreciation reduces the basis of an asset whether the depreciation is deducted or not.

Question 5

A taxpayer who owns indistinguishable shares of stock purchased in two or more transactions and who later sells some of the stock must identify the shares sold using the last-in, first-out (LIFO) method.

Question 6

The general rule to determine the basis of property acquired by gift is that the donee's basis is equal to the donor's basis plus any gift taxes paid.

Question 7

The abandonment of property used in a business or income-producing activity generally results in a loss equal to the property's adjusted basis.

Question 8

A bargain sale of property to a qualified charity can result in both a charitable deduction and gain recognition.

Question 9

The transfer of 20 shares of stock in satisfaction of a liability constitutes a sale or other disposition of the stock, resulting in gain or loss realized.

Question 10

The general rule for determining the basis of property acquired from a decedent does not apply to income in respect of a decedent.

Question 11

Gain or loss is realized any time there is a sale or other disposition of property.

Question 12

Where there is no intent to demolish a building at the time of acquisition, the amount of loss on the building may be deducted at the time of subsequent demolition.

Question 13

Under a divorce agreement, R was required to transfer his share of the jointly owned home to his ex-wife, L.The home cost $72,000 and was worth $124,000 at the time of the transfer.R has no gain and L's basis is $72,000.

Question 14

The cost basis of a given property does not include liabilities payable to the seller by the buyer because no cash changes hands.

Question 15

When property is converted from personal to business use, the basis for loss and for depreciation can be no greater than the fair market value at the time of the conversion.

Question 16

In order for an executor of an estate to elect the alternate valuation date, an estate tax return must be filed and the alternate valuation must be less than the FMV as of the decedent's death.

Question 17

Liabilities are included in the amount realized only if the seller was personally liable for their payment.

Question 18

If a taxpayer converts business property to personal use before selling it, he or she will be prohibited from deducting a loss on the sale.

Question 19

F sold 30 shares of GMX stock to R, her husband, for its fair market value of $1,500.F's basis in the stock was $1,200, so she recognizes a gain of $300.

Question 20

The alternate valuation date for an estate is nine months after a decedent's death.

Question 21

Last year, E received 50 acres of undeveloped land as a gift from her grandmother.The land had cost $20,000 15 years ago, but was appraised at $50,000 on the date of the gift.E's grandmother paid gift taxes of $12,000 on this $36,000 taxable gift ($50,000 fair value - $14,000 annual gift tax exclusion).If E sells the land this year for $55,000 (net of selling expenses), what is her gain on the sale?

A)$5,000
B)$19,000
C)$23,000
D)$25,000

Question 22

Installment sale reporting applies to gains only.

Question 23

M sold 10 shares of Ford Motor Co.at a gain through his broker on December 30, 2012.M must report the gain on his 2012 return.

Question 24

T purchased the following lots of ZYX Corporation stock: $$\begin{array} { l l } \text { 25 Shares } & \text { Purchased 4/30/2012 Cost } \$ 1,800 \\\text { 40 Shares } & \text { Purchased 5/20/2012 Cost } \$ 3,000 \\25 \text { Shares } & \text { Purchased 9/21/2012 Cost } \$ 2,000\end{array}$$ T sold 70 shares in December, 2012, for $6,300, but was unable to identify specific shares to be sold by certificate number and date of purchase.What was T's adjusted basis in the $30,000 shares sold?

A)$5,200
B)$5,250
C)$5,360
D)$6,300

Question 25

F traded in a business automobile worth $4,500 subject to $2,000 of outstanding debt, for a new automobile worth $10,500.F signed a note for $8,000, and no cash changed hands.What is F's amount realized on this trade?

A)$2,000
B)$4,500
C)$10,500
D)Indeterminable from the facts given

Question 26

D owns a new pizza restaurant.She converted her home, which she had purchased for $75,000 for use in the business when it was worth $70,000.Which of the following is not true of the home's basis for the business?

A)$75,000 is used for determining depreciation.
B)$70,000 is used for determining loss.
C)$75,000 is used for determining gain.
D)The basis must be adjusted for depreciation allowed or allowable for determining either gain or loss.

Question 27

The adjusted basis to the recipient of property bequeathed by a decedent generally is which of the following?

A)Fair market value on the valuation date of the decedent's estate
B)Adjusted basis to the decedent on the valuation date of his or her estate
C)Fair market value on the valuation date of the decedent's estate, less estate taxes paid on the transfer
D)Adjusted basis to the decedent on the valuation date of his or her estate, plus estate taxes paid on the transfer

Question 28

Which statement below is true with regard to property transactions?

A)The amount realized represents the economic value received by the taxpayer.
B)The amount recognized represents the economic value received by the taxpayer.
C)A recognized loss generally is deferred to later tax years.
D)A recognized gain may be included in the computation of taxable income but may not be offset against loss for the year.

Question 29

A businessman purchases three trucks at an auction.Six months later, he sells one of the trucks.He may choose as his basis for this truck either his adjusted basis in the truck or the FMV of the truck on the date of the auction.

Question 30

Which one of the following is true of selling costs?

A)They generally are divided equally between the seller and the buyer.
B)They include costs associated with offering a property for sale, but not those associated with transacting the sale.
C)They do not affect the amount realized in a transaction.
D)They may include both sales commissions and transfer taxes.

Question 31

N sold a summer cabin to Y for $30,000 in cash and a recreational vehicle.Y had an adjusted basis in the RV of $15,000 at the time of the sale, although its fair market value was $22,000.N had an adjusted basis in the cabin of $44,000.Assume there were no selling costs.What was N's realized gain or (loss)?

A)($8,000)
B)($1,000)
C)$8,000
D)$10,000

Question 32

If an installment sale agreement involving a $15,000 note calls for no interest, interest must be imputed both to the buyer as interest expense and to the seller as interest income.

Question 33

C replaced the car that she had used exclusively for her business with a new model.The older car cost $20,000, and its basis after allowable depreciation had been $15,500 at the time C converted it to personal use.This year C sold the older car for $9,000.What loss on the sale may she claim as a deduction?

A)$0
B)$6,500
C)$11,000
D)C's loss is indeterminable from the given information.

Question 34

N sold a summer cabin to Y for $30,000 in cash and a recreational vehicle.Y had an adjusted basis in the RV of $15,000 at the time of the sale, although its fair market value was $22,000.N had an adjusted basis in the cabin of $44,000.Assume there were no selling costs.What was N's amount realized in the sale?

A)$55,000
B)$45,000
C)$52,000
D)$44,000

Question 35

When a sole proprietorship is sold, the gain or loss is generally capital gain or loss.

Question 36

Several years ago, E received 50 acres of undeveloped land as a gift from her grandmother.The land had cost $20,000 15 years ago, but was appraised at $50,000 on the date of the gift.E's grandmother paid gift taxes of $12,000 on this $36,000 taxable gift ($50,000 fair value - $14,000 annual gift tax exclusion).If E sells the land this year for $32,000 (net of selling expenses), what is her gain or loss on the sale?

A)$2,000 gain
B)$4,000 loss
C)$18,000 loss
D)No gain or loss

Question 37

C sold 300 shares of IBM stock for $5,200.She had paid $3,000 for the stock.Commissions of $300 on the sale and $180 on the purchase were paid.How much are C's amount realized and her gain realized, respectively, on this sale?

A)$2,200 and $1,720
B)$4,720 and $1,720
C)$4,900 and $1,720
D)$5,200 and $2,200

Question 38

G inherited a late model Mercedes Benz from his great-aunt last year.The auto was worth $28,000 when his aunt died, and G sold the auto two months later for $30,000.The aunt had purchased the auto three months before her death for $38,000.How much gain (or loss) does G recognize on this sale?

A)$0
B)$2,000
C)($10,000)
D)($8,000)

Question 39

The adjusted basis of purchased property is

A)Equal to the fair market value of the property at the time of purchase
B)Defined as the book value of the property
C)Reduced by any debt owed on the property before any gain or loss is computed
D)Generally its cost, plus or minus certain adjustments

Question 40

E received 50 acres of undeveloped land as a gift from her grandmother this year.The land had cost $20,000 15 years ago, but was appraised at $50,000 on the date of the gift.E's grandmother paid gift taxes of $12,000 on this $36,000 taxable gift ($50,000 fair value - $14,000 annual gift tax exclusion).What is E's basis in the land?

A)$20,000
B)$30,000
C)$32,000
D)$36,000

Question 41

H sold a parcel of real estate worth $45,000 to his favorite qualified charity for $30,000.H had a tax basis in the unimproved parcel of $36,000.What are the amounts of H's charitable contribution and his gain or loss recognized, respectively, on this sale?

A)$0 and $0
B)$15,000 and ($6,000)
C)$15,000 and $0
D)$15,000 and $6,000

Question 42

A realization of gain or loss occurs

A)When the seller has an unqualified right to collect the purchase price
B)When the seller receives cash or cash equivalents in payment of the purchase price
C)When possession of the burdens and benefits of ownership are transferred to the buyer
D)Under any circumstance listed above, depending in part on the accounting method used by the taxpayer

Question 43

F owns land with an adjusted basis of $45,000 and a fair market value of $72,000.Which one of the following is true of a transfer by F to his spouse, G?

A)If F gives a one-half interest in the land to G as a wedding gift, gain of $13,500 is recognized.
B)If F sells the land to G for $50,000 incident to their divorce, no gain is recognized and G's basis is $45,000.
C)If F transfers the land to G without consideration incident to their divorce, gain of $13,500 is recognized.
D)If F sells the land to G for $72,000 incident to their divorce, gain of $27,000 is recognized and G's basis is $72,000.

Question 44

S sold a business microcomputer for $2,000 that she had purchased for $2,500 several months earlier.Assume the depreciation deducted under MACRS on the computer for the actual holding period was $1,795.What is the amount of S's gain recognized on this sale?

A)$0
B)$500
C)$1,795
D)$1,295

Question 45

B purchased a tractor trailer from his mother for its fair market value of $2,100.She had used the trailer exclusively for business purposes.At the time of sale, the mother's basis in the vehicle was $5,500.What is B's recognized gain or loss if he immediately sells the vehicle for $3,200?

A)($3,400)
B)($2,300)
C)$0
D)$1,100

Question 46

B sold 300 shares of corporate stock for $2,500 on March 15, 2012.B had a basis in the shares of $5,500.On February 27, 2012, B had purchased 150 shares of identical stock for $1,300.How much are B's gain or (loss) recognized and her basis in the new shares, respectively, from these transactions?

A)($1,500) and $4,050
B)($1,500) and $2,800
C)($250) and $2,800
D)$0 and $5,550

Question 47

W owned and operated a printing shop as a sole proprietorship for two decades before selling it to Z.Which statement is true?

A)W should report the total amount realized, less his total adjusted basis in the business, as a capital gain or loss.
B)W should report the total amount realized, less his total adjusted basis in the business, as an addition to or a deduction from net income.
C)W should proportionally allocate the total sales price to each category of property represented among the assets of the business in order to determine the amount of gain or loss for each category.
D)W and Z should agree on a value for each category of property from which W can subtract the respective adjusted bases in order to determine the amount of gain or loss for each category.

Question 48

Which condition is not true of a wash sale?

A)A wash sale occurs when a taxpayer sells securities at a loss and reinvests in substantially identical securities within 30 days before or after the date of sale.
B)A taxpayer who transacts a wash sale has not had a change in economic position.
C)The numbers of shares purchased and sold are not always the same.
D)When the number of shares repurchased is less than the number sold, none of the loss is deductible.

Question 49

W sold a residence for $40,000 payable as follows: Cash down payments $\quad$$\quad$$\quad \$ 8,000$
Existing loan assumed by buyer $\quad 20,000$
Promissory note bearing interest at
10 percent, payable to $W$ in two years $\quad$ 12,000 No payments were made on the promissory note during the year of sale.Assuming W's basis is $30,000, how much gain is recognized by W in the year of sale? Ignore selling costs.

A)$2,000
B)$4,000
C)$7,000
D)$10,000

Question 50

Which statement is not true concerning installment contracts and unstated interest?

A)Unstated interest increases the sale price
B)Unstated interest results in income to the seller
C)The buyer is entitled to an interest deduction for paying unstated interest
D)Unstated interest sometimes must be taken into account even if a stated rate of interest is included in the sales contract

Question 51

Which one of the following family members is not related for purposes of nondeductible losses on sales to related parties?

A)Sister
B)Spouse
C)Uncle
D)Grandchild

Question 52

In which transaction did the donor/seller not recognize a gain?

A)A gave his car to his brother, who took over the 12 months of payments remaining due; the indebtedness represented by the remaining payments exceeded A's basis in the car at the time of the transfer.
B)B sold a boat with a basis of $40,000 and fair market value of $60,000 to her nephew for $50,000.
C)C sold a cabin with a basis of $45,000 and fair market value of $50,000 to his niece for $50,000.
D)D gave her sister securities with a basis and fair market value of $25,000 in exchange for $10,000 in cash and a five-year, $15,000 note at 10 percent interest.

Question 53

R sold the family homestead to his daughter for $250,000 at a time when its fair market value was $400,000.R's basis was $130,000.How much gain does R realize on the transaction?

A)$0
B)$120,000
C)$250,000
D)$270,000

Question 54

Liabilities that reduce the amount realized from a transaction include which of the following?

A)Any liabilities of the seller assumed by the buyer
B)Limited liabilities of the seller assumed by the buyer
C)Any liabilities assumed by the seller related to the transaction
D)Nonrecourse debt assumed by the buyer

Question 55

Which of the following transactions is not a taxable disposition of property?

A)Voluntary transfer of mortgaged property to creditors in satisfaction of a debt
B)Loss of property in a foreclosure sale
C)Transfer of physical property in lieu of cash payments to retire a note
D)Grant of a lien against property to secure a loan

Question 56

Which one of the following losses may be recognized?

A)Decline in the value of P's computer before he converted it from personal to exclusively business use
B)Sale of property by M to his son for an amount less than either M's basis in the property or its fair market value at the time of sale
C)$2,000 by K, if L's adjusted basis in jewelry was $35,000, its fair market value in 2008 was $30,000 when she gave it to her friend K, and K held it for investment and sold it this year for $28,000
D)$7,000 by K, if L's adjusted basis in jewelry was $35,000, its fair market value in 2008 was $30,000 when she gave it to her friend K, and K held it for investment and sold it this year for $28,000

Question 57

A and E are a married couple living in a community property state.E owned an apple orchard in which she had a basis of $70,000.She sold the orchard to A last year for its fair market value of $100,000.They remain happily married.What gain did E recognize on the sale?

A)$0
B)$30,000
C)$70,000
D)$100,000

Question 58

Which of the following transactions is a taxable event? (Assume that the condition of being substantially identical is determined in terms of rate of return and fair market value.)

A)Conversion of bonds into stock under a conversion privilege contained in the bond instrument
B)Exchange of substantially identical bonds of state or municipal governments
C)Exchange of substantially identical stocks of publicly held corporations
D)Conversion of stock into some other stock of the same corporation pursuant to a right granted under the stock certificate

Question 59

M sold a family heirloom to her nephew last year for $1,200 plus an $1,800 note payable to M at $100 per month plus interest.The silver place settings had been purchased by M 30 years earlier for $1,600, and were worth $6,000 at the time of the sale/gift.How much gain does M realize?

A)$0
B)$1,400
C)$3,000
D)$4,400

Question 60

H sold a parcel of real estate worth $45,000 to his favorite qualified charity for $30,000, subject to a $10,000 note that is assumed by the charity.H had a tax basis in the unimproved parcel of $36,000.What are the amounts of H's charitable contribution and his gain or loss recognized, respectively, on the sale?

A)$0 and $0
B)$5,000 and $8,000
C)$15,000 and $8,000
D)$15,000 and $16,000