Question 1

Jamahl and Indira are married and live in a common law state.They jointly own real property with an adjusted basis of $200,000.When the property has a FMV of $450,000,Jamahl dies leaving all of the property to Indira.If she later sells the property for $700,000,what is Indira's gain on the sale?

Accepted Answer

When Jamahl passed away, Indira inherited the property with a stepped-up basis equal to its Fair Market Value (FMV) at the time of his death - $450,000. Therefore, Indira's adjusted basis for the property is $450,000. When she sells it for $700,000, her gain would be the difference between the sale price and her adjusted basis, which is $700,000 - $450,000 = $250,000.

Question 2

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 higher of his aunt's adjusted basis ($133,000) or the FMV at the time of the gift ($144,000), which is $144,000. However, since the gift tax paid by his aunt is greater than the amount of the gift above the annual exclusion ($130,000 - $15,000 = $115,000), Don's basis is increased by the amount of gift tax paid, which is $20,000. Therefore, his basis in the house is $144,000 + $20,000 = $164,000. Since the gift tax paid by the donor is added to the basis, choice C is the correct answer with the closest option to the calculated value.

Question 3

In a common law state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

Accepted Answer

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Question 4

Terrell and Michelle are married and living in New York,which is a not a community property state.They jointly own property with an adjusted basis of $240,000.On December 2 of this year,Michelle died when the property had a fair market value of $260,000.Terrell's basis in the property after Michelle's death is

Accepted Answer

When Michelle died, the property received a step-up in basis to the fair market value of $260,000. Therefore, Terrell's new basis in the property would be $260,000. However, since they jointly owned the property, only 50% of the property received the step-up in basis. So Terrell's new basis in the property would be 50% of $260,000, or $130,000. Adding this to his original basis of $120,000 (his share of the adjusted basis), his new basis is $250,000.

Question 5

Monte inherited 1,000 shares of Corporation Zero stock from his father who died on March 4 of the current year.His father paid $30 per share for the stock on September 2,2005.The FMV of the stock on the date of death was $50 per share.On September 4 this year,the FMV of the stock was $55 per share.The executor did not elect the alternate valuation date.Monte sold the stock for $65 per share on December 3.What is the amount and nature of any gain or loss?

Accepted Answer

Monte's basis in the stock is the fair market value on the date of his father's death, which is $50 per share. He sold the stock for $65 per share, resulting in a long-term capital gain of $15 per share. Therefore, the total gain is $15,000 ($15 per share x 1,000 shares). Since Monte held the stock for more than one year before selling it, the gain is a long-term capital gain (LTCG).

Question 6

In a community property state,jointly owned property left to the surviving spouse will have a basis after the estate is settled equal to

Accepted Answer

In community property states, property acquired during the marriage is generally considered community property and is owned equally by both spouses. When one spouse dies, the surviving spouse receives a step-up in basis for their half of the property to the fair market value at the date of death. Therefore, the basis for the entire property after the estate is settled will be equal to the total fair market value of the entire property at the date of death (if the alternative valuation date was not elected). This is because the surviving spouse now owns the entire property with a stepped-up basis.

Question 7

Brad owns 100 shares of AAA Corporation with a basis of $6,000 and a FMV of $24,000.Brad receives 15 stock rights as a nontaxable distribution with a total FMV of $6,000.Brad allows the stock rights to expire.Brad's loss recognized and the basis of the original 100 shares after expiration of the stock rights is

Accepted Answer

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Question 8

Douglas and Julie are a married couple who live in Louisiana,a community property state.They jointly own property with an adjusted basis of $140,000.On December 2 of this year,Julie died when the property had a fair market value of $160,000.Douglas's basis in the property after Julie's death is

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Question 9

Josh purchases a personal residence for $278,000 but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Josh sells the property for $280,000,his gain or loss will be

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Question 10

Joycelyn gave a diamond necklace to her granddaughter Emma.Joycelyn had purchased the necklace in 1980 for $15,000.The FMV of the necklace at the time of the gift was $44,000.After deducting the annual exclusion,the amount of the gift was $30,000.Gift taxes of $10,000 were paid.What is Emma's adjusted basis in the necklace?

Accepted Answer

Emma's adjusted basis in the necklace is calculated as follows:
Original cost basis = $15,000
Gift taxes paid = $10,000
Total cost basis = $25,000
FMV at time of gift = $44,000
Amount of gift = $30,000
Since the amount of the gift is less than the FMV at the time of the gift, Emma's basis in the necklace is determined by using Joycelyn's basis, which is $15,000. However, since gift taxes were paid, the basis must be adjusted by the ratio of the gift taxes paid to the total value of the gift and taxes, which is ($10,000 / $40,000 = 0.25). Therefore, Emma's adjusted basis in the necklace is calculated as follows:
Adjusted basis = $15,000 + ($10,000 x 0.25)
Adjusted basis = $15,000 + $2,500
Adjusted basis = $17,500
However, since Emma cannot claim a loss on the necklace if she later sells it for less than $44,000, her adjusted basis is capped at the FMV at the time of the gift, which is $24,667. Therefore, the best choice is B.

Question 11

If a nontaxable stock dividend is received and is not the same type of stock as that owned before the dividend,the original stock's basis is allocated to all shares

Accepted Answer

The basis of the original stock is allocated to all shares based on their relative fair market values at the time of the stock dividend. This ensures that the overall basis remains the same before and after the dividend, but each share's basis is adjusted to reflect the change in value resulting from the dividend.

Question 12

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

The basis of the property for the donee (Andrew) is determined by the adjusted basis of the property for the donor (uncle), with some adjustments. In this case, the adjusted basis of the property for the uncle was $70,000. Since the FMV was higher at the time of the gift, the basis for Andrew will be the FMV of $114,000. However, since the gift tax paid by the uncle was based on the $100,000 gift amount, there is a reduction in basis equal to the gift tax paid ($24,000). Therefore, Andrew's basis in the property is $114,000 - $24,000 = $90,000. Additionally, since the property was a gift, Andrew will also take over the holding period of his uncle, which means that he will have long-term capital gain or loss if he decides to sell the property.

Question 13

Bob owns 100 shares of ACT Corporation common stock with a basis of $3,500 and a FMV of $12,000.Bob receives 10 stock rights as a nontaxable distribution,and no basis is allocated to the stock rights.With each stock right,Bob may acquire one share of stock for $25.Bob exercises all 10 stock rights.The total basis of the newly acquired stock is

Accepted Answer

When Bob exercises the stock rights, he pays $25 for each share. Therefore, the basis of each newly acquired share is $25. Since Bob exercised 10 stock rights to acquire 10 new shares, the total basis of the newly acquired stock is $25 x 10 = $250. No basis is allocated to the stock rights, so their distribution does not affect the basis calculation. Therefore, the correct answer is choice B.

Question 14

Dustin purchased 50 shares of Short Corporation for $500.During the current year,Short declared a nontaxable 10% stock dividend.What is the basis per share before and after the stock dividend is distributed?

Accepted Answer

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Question 15

Tina purchases a personal residence for $278,000,but subsequently converts the property to rental property when its FMV is $275,000.Assume depreciation of $65,000 has been deducted after conversion to rental use.If Tina sells the property for $200,000,her realized gain or loss will be

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Question 16

Melody inherited 1,000 shares of Corporation Zappa stock from her mother who died on March 4 of the current year.Her mother paid $30 per share for the stock on September 2,2005.The FMV of the stock on the date of death was $65 per share.On September 4 of the current year,the FMV of the stock was $70 per share.Melody sold the stock for $85 per share on December 3.The estate qualified for,and the executor elected,the alternate valuation method for these and other assets in the estate.An estate tax return was filed.What was Melody's basis in the stock on the date of the sale?

Accepted Answer

Melody's basis in the stock is equal to the FMV of the stock on her mother's date of death, which is $65 per share. Since the estate elected the alternate valuation method, the FMV of the stock on the date of her mother's death is used to determine the basis, rather than the original purchase price. Therefore, Melody's basis in the stock is 1,000 shares x $65 per share = $65,000. When she sold the stock for $85 per share, her total proceeds were 1,000 shares x $85 per share = $85,000. Her capital gain is $85,000 - $65,000 = $20,000.

Question 17

Jessica owned 200 shares of OK Corporation with a basis of $12,000 and a FMV of $24,000.Jessica received 20 stock rights as a nontaxable distribution with a total FMV of $8,000.Jessica sold the stock rights for $4,000.Jessica's gain or loss on the sale was

Accepted Answer

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Question 18

Billy and Sue are married and live in Texas,a community property state.They jointly own real property with an adjusted basis of $200,000.When the property has a FMV of $450,000,Billy dies leaving all of the property to Sue.If she later sells the property for $650,000,what is Sue's gain on the sale?

Accepted Answer

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Question 19

In 2014 Toni purchased 100 shares of common stock in Blue Corporation for $5,280.In 2015,Blue declared a stock dividend of one share of its common stock for each 10 shares held.This year,2016,Blue's common stock split 2 for 1 at a time when the FMV was $80 a share.What is Toni's basis in each of her shares of the Blue Corporation stock if both of the earlier stock dividends were tax-free?

Accepted Answer

Toni's original basis was $5,280 for 100 shares, or $52.80 per share. After the 10% stock dividend, she had 110 shares, making the basis $48 per share. After the 2-for-1 stock split, she had 220 shares, making the basis $24 per share.

Question 20

David gave property with a basis of $133,000 to Hannah when the property had a FMV of $100,000 and paid gift taxes of $8,000.If Hannah later sells the property for $140,000,Hannah's basis (to determine gain)in the property immediately before the sale is

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Quiz 5: Property Transactions: Capital Gains and Losses