Question 1

Karen owns City of Richmond bonds with a face value of $10,000.She purchased the bonds on January 1,2013,for $11,000.The maturity date is December 31,2022.The annual interest rate is 8%.What is the amount of taxable interest income that Karen should report for 2013,and the adjusted basis for the bonds at the end of 2013,assuming straight-line amortization is appropriate?
A)$0 and $11,000.
B)$0 and $10,900.
C)$100 and $11,000.
D)$100 and $10,900.
E)None of the above.

Accepted Answer

The answer of Karen owns City of Richmond bonds with...

Question 2

Jamie bought her house in 2008 for $395,000.Since then,she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing.She sells the house on July 1,2013.Her realtor charged $34,700 in commissions.Prior to listing the house with the realtor,she spent $300 advertising in the local newspaper.Sammy buys the house for $500,000 in cash,assumes her mortgage of $194,000,and pays property taxes of $4,200 for the entire year on December 1,2013.What is Jamie's adjusted basis at the date of the sale and the amount realized?
A)$370,000 adjusted basis; $661,400 amount realized.
B)$370,000 adjusted basis; $661,100 amount realized.
C)$370,000 adjusted basis; $665,200 amount realized.
D)$325,000 adjusted basis; $663,200 amount realized.
E)$325,000 adjusted basis; $694,000 amount realized.

Accepted Answer

The answer of Jamie bought her house in 2008 for...

Question 3

Pedro borrowed $250,000 to purchase a machine costing $300,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later,the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000.Pedro sells the machine subject to the two liabilities for $45,000.What is his realized gain or loss?
A)$0.
B)$45,000.
C)$163,000.
D)$208,000.
E)None of the above.

Accepted Answer

The answer of Pedro borrowed $250,000 to purchase a machine...

Question 4

Jason owns Blue Corporation bonds (face value of $10,000),purchased on January 1,2013,for $11,000.The bonds have an annual interest rate of 8% and a maturity date of December 31,2022.If Jason elects to amortize the bond premium,what is his taxable interest income for 2013 and the adjusted basis for the bonds at the end of 2013 (assuming straight-line amortization is appropriate)?
A)$800 and $11,000.
B)$800 and $10,900.
C)$700 and $11,000.
D)$700 and $10,900.
E)None of the above.

Accepted Answer

Jason's taxable interest income for 2013 is $700, calculated by subtracting the amortized premium of $100 ($1,000 premium over 10 years) from the $800 interest received. The adjusted basis at the end of 2013 is $10,900, after reducing the original basis by the $100 amortized premium.

Question 5

Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's recognized gain or loss?
A)$0.
B)$12,000.
C)($13,000).
D)($25,000).
E)None of the above.

Accepted Answer

The answer of Katie sells her personal use automobile for...

Question 6

Yolanda buys a house in the mountains for $450,000 which she uses as her personal vacation home.She builds an additional room on the house for $40,000.She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale.What is the recognized gain or loss on the sale of the house?
A)$0.
B)$38,000.
C)$70,000.
D)$110,000.
E)None of the above.

Accepted Answer

The answer of Yolanda buys a house in the mountains...

Question 7

Wyatt sells his principal residence in December 2013 and qualifies for the § 121 exclusion.He sells another principal residence in November 2014.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

Accepted Answer

Wyatt can qualify for the § 121 exclusion on the sale of his second principal residence as long as he meets the ownership and use requirements and has not claimed the exclusion on another principal residence within the past two years.

Question 8

Abby sells real property for $300,000.The buyer pays $5,000 in property taxes that had accrued during the year while the property was still legally owned by Abby.In addition,Abby pays $15,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Abby realize (the amount realized)from the sale of her property?
A)$277,000.
B)$282,000.
C)$287,000.
D)$300,000.
E)None of the above.

Accepted Answer

The amount realized is calculated as follows:
Sales Price = $300,000
Plus: Buyer paid property taxes = $5,000
Minus: Commissions = $15,000
Minus: Legal fees = $3,000
Amount Realized = $300,000 + $5,000 - $15,000 - $3,000 = $287,000. Therefore, the best choice is C.

Question 9

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?
A)$1,350,000.
B)$1,378,000.
C)$1,385,000.
D)$1,413,000.
E)None of the above.

Accepted Answer

The basis for the land is the purchase price, legal fees, and broker's commission, which total $588,000 ($550,000 + $10,000 + $28,000).
The basis for the improvements is the cost to subdivide the land and install streets and sewers, which is $800,000.
Therefore, the total basis is $1,388,000 ($588,000 + $800,000).
However, Carlton also incurred additional legal fees of $25,000 to have the land rezoned, which should be added to the basis. Therefore, the final basis is $1,413,000 ($1,388,000 + $25,000).

Question 10

A strip along the boundary of Joy's land is condemned for a utility easement.She receives a payment of $7,500 from the utility company.Her basis in the land is $80,000.Which of the following is correct?
A)Joy must include the $7,500 in gross income.
B)Joy must reduce the basis of the land by $7,500.
C)Joy must include the $7,500 in the gross income and increase the basis of the land by $7,500.
D)Only a.and c.are correct.
E)a.,b.,and c.are correct.

Accepted Answer

When a portion of land is condemned, the owner receives compensation for the property taken. This compensation, called a condemnation award, is not taxable. However, the basis of the land must be reduced by the amount of the condemnation award. Therefore, only option B is correct. Option A is incorrect because the payment is not included in gross income. Option C is incorrect because the basis of the land is decreased, not increased. Option D is incorrect because only option B is correct. Option E is incorrect because options A and C are not correct.

Question 11

Capital recoveries include:
A)The cost of capital improvements.
B)Ordinary repair and maintenance expenditures.
C)Payments made on the principal of a mortgage on taxpayer's building.
D)Amortization of bond premium.
E)All of the above.

Accepted Answer

The answer of Capital recoveries include:
A)The cost of capital improvements.
B)Ordinary...

Question 12

Albert purchased a tract of land for $140,000 in 2010 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000.Highway engineers surveyed the property and indicated that he would probably get $180,000.The highway project was abandoned in 2013 and the value of the land fell to $100,000.What is the amount of loss Albert can claim in 2013?
A)$40,000.
B)$60,000.
C)$80,000.
D)$100,000.
E)None of the above.

Accepted Answer

Albert cannot claim a loss because the loss is unrealized; he has not sold the property. The value decrease is not a deductible loss for tax purposes.

Question 13

Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

Accepted Answer

The answer of Owen and Polly have been married for...

Question 14

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

Accepted Answer

This is true according to the Internal Revenue Code.

Question 15

Steve purchased his home for $500,000.As a sole proprietor,he operates a certified public accounting practice in his home.For this business,he uses one room exclusively and regularly as a home office.In Year 1,$3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2,Steve sustained losses in his business; therefore,no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense,his depreciation expense would have been $3,175.What is the adjusted basis in the home?
A)$493,783.
B)$496,825.
C)$496,958.
D)$500,000.
E)None of the above.

Accepted Answer

The answer of Steve purchased his home for $500,000.As a...

Question 16

Noelle owns an automobile which she uses for personal use.Her adjusted basis is $45,000 (i.e.,the original cost).The car is worth $22,000.Which of the following statements is correct?
A)If Noelle sells the car for $22,000,her realized loss of $23,000 is not recognized.
B)If Noelle exchanges the car for another car worth $22,000,her realized loss of $23,000 is not recognized.
C)If the car is stolen and it is uninsured,Noelle may be able to recognize part of her realized loss of $23,000.
D)Only a.and b.are correct.
E)a.,b.,and c.are correct.

Accepted Answer

The answer of Noelle owns an automobile which she uses...

Question 17

Alice owns land with an adjusted basis of $610,000,subject to a mortgage of $350,000.Real estate taxes are $9,000 per calendar year and are payable on December 31.On April 1,2013,Alice sells her land subject to the mortgage for $650,000 in cash,a note for $600,000,and property with a fair market value of $120,000.What is the amount realized?
A)$1,370,000.
B)$1,372,219.
C)$1,720,000.
D)$1,722,219.
E)None of the above.

Accepted Answer

The answer of Alice owns land with an adjusted basis...

Question 18

Sandra's automobile,which is used exclusively in her trade or business,was damaged in an accident.The adjusted basis prior to the accident was $11,000.The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000.Insurance proceeds of $3,200 are received.What is Sandra's adjusted basis for the automobile after the casualty?
A)$0.
B)$7,000.
C)$7,800.
D)$10,200.
E)None of the above.

Accepted Answer

The answer of Sandra's automobile,which is used exclusively in her...

Question 19

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000).Of the insurance proceeds of $360,000 she receives,Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit.She received only $360,000 because of a co-insurance clause in her insurance policy.What is Joyce's recognized gain or loss?
A)$0.
B)$10,000 loss.
C)$10,000 gain.
D)$40,000 gain.
E)None of the above.

Accepted Answer

Joyce's adjusted basis of the office building was $350,000, and she received $360,000 in insurance proceeds. This means she has a $10,000 gain. However, she used $310,000 of the insurance proceeds to purchase additional inventory, which is a replacement property. Therefore, she can defer the gain recognition under the involuntary conversion rules. The remaining $50,000 was invested in short-term certificates of deposit, which is not a replacement property. Hence, the $10,000 gain on the office building is recognized.

Question 20

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

Accepted Answer

A taxpayer cannot recognize a loss on the sale of their principal residence because it is considered a personal use asset, not a capital asset. Therefore, losses on the sale of a principal residence are not deductible.

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

Katie sells her personal use automobile for $12,000.She purchased the car three years ago for $25,000.What is Katie's recognized gain or loss?

Wyatt sells his principal residence in December 2013 and qualifies for the § 121 exclusion.He sells another principal residence in November 2014.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

A strip along the boundary of Joy's land is condemned for a utility easement.She receives a payment of $7,500 from the utility company.Her basis in the land is $80,000.Which of the following is correct?

Capital recoveries include:

Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

Noelle owns an automobile which she uses for personal use.Her adjusted basis is $45,000 (i.e.,the original cost) .The car is worth $22,000.Which of the following statements is correct?

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.