Question 1

What effect does a deductible casualty loss have on the adjusted basis of property?

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Question 2

What is the difference between the depreciation (or cost recovery) allowed and the depreciation (or cost recovery) allowable and what effect does each have on the adjusted basis of property?

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Question 3

Tara owns common stock in Taupe, Inc., with an adjusted basis of $250,000. She receives a preferred stock dividend which is nontaxable.
a. What effect does the preferred stock dividend have on Tara's adjusted basis of the common stock?
b. How is the basis of the preferred stock calculated?
c. What effect does the preferred stock dividend have on Tara's gross income?

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Question 4

Maurice sells his personal use automobile at a realized loss. Under what circumstances can Maurice deduct the loss? What if the personal use asset was sold at a realized gain?

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Question 5

When a property transaction occurs, what four questions should be considered with respect to the sale or other disposition?

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Question 6

Define a bargain purchase of property and discuss the related tax consequences.

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Question 7

Mandy and Greta form Tan, Inc., by transferring the following assets to the corporation in exchange for 5,000 shares of stock each.
Mandy: Cash of $450,000
Greta: Land (worth $450,000; adjusted basis of $90,000).
How much gain must Tan recognize on the receipt of these assets?

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Question 8

Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.

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Question 9

Liz, age 55, sells her principal residence for $600,000. She purchased it twenty-two years ago for $175,000. Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000. Liz's objective is to minimize the taxes she must pay associated with the sale. Calculate her recognized gain.

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Question 10

What is the general formula for calculating the adjusted basis of property?

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Question 11

After 5 years of marriage, Dave and Janet decided to get a divorce. As part of the divorce settlement, Janet transfers to Dave the house she purchased prior to their marriage. Janet's adjusted basis for the house is $230,000 and the fair market value is $410,000 on the date of the transfer. What are the tax consequences to Janet and to Dave as a result of the transfer?

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Question 12

Under what circumstances will a distribution by a corporation to its only shareholder result in a capital gain?

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Question 13

For a corporate distribution of cash or other property to a shareholder, when does dividend income or a return of capital result?

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Question 14

If a taxpayer purchases taxable bonds at a premium, the amortization of the premium is elective. However, if a taxpayer purchases tax-exempt bonds at a premium, the amortization of the premium is mandatory. Explain this difference in the treatment.

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Question 15

Define fair market value as it relates to property transactions.

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Question 16

Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000) from personal use to business use. Justin receives a building with a $40,000 fair market value ($50,000 donor's adjusted basis) from his mother as a gift. Discuss the tax consequences with respect to Joseph's and Justin's adjusted basis.

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Question 17

Lois received nontaxable stock rights with a fair market value of $6,000. The fair market value of the stock on which the rights were received is $24,000 (cost $14,000). Assume the rights are exercised by paying $32,000 plus the rights. Discuss how to calculate the basis of the old stock and the basis of the new stock.

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Question 18

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

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Question 19

Beth sells investment land (adjusted basis of $225,000) that she has owned for 6 years to her husband, Richard, for its fair market value of $195,000.
a. Calculate Beth's recognized gain or loss.
b. Calculate Richard's basis for the land.
c. How would your answers in a. and b. change if Beth and Richard were not married (i.e., merely good friends)?
d. Would the answer in a. and b. change if the selling price was $270,000?

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Question 20

How is the donee's basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax.

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