Question 1

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?

Accepted Answer

H's charitable contribution is the amount that he contributed to the qualified charity, which is $15,000 ($45,000 - $30,000).

To determine if H recognized a gain or loss on the sale, we need to compare the amount realized ($30,000) to his tax basis in the property ($36,000).

Since the amount realized is less than H's tax basis, he recognizes a loss. The amount of the loss is the difference between the tax basis and the amount realized, which is $6,000 ($36,000 - $30,000).

Therefore, the answer is D: $15,000 and $6,000.

Question 2

A realization of gain or loss occurs

Accepted Answer

A realization of gain or loss can occur under various circumstances, including when the seller has an unqualified right to collect the purchase price, when cash or cash equivalents are received, or when the burdens and benefits of ownership are transferred to the buyer. The specific circumstance that triggers realization can depend on the accounting method used by the taxpayer.

Question 3

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?

Accepted Answer

When property transfers between spouses incident to a divorce, there is no gain or loss recognized on the transfer, and the receiving spouse takes over the same adjusted basis that the transferring spouse had in the property. Therefore, option B is correct. Option A is incorrect because a gift is not incident to a divorce, and the gain would be recognized. Option C is incorrect because a transfer without consideration is also not incident to a divorce, and the gain would be recognized. Option D is incorrect because if F sold the property to G for the fair market value of $72,000, then there would be no gain or loss recognized, and G's basis would be $72,000.

Question 4

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?

Accepted Answer

The gain recognized on the sale is calculated as follows: 
Sale price ($2,000) - Adjusted basis ($2,500 - depreciation of $1,795) = $1,295 gain. So the correct answer is (D).

Question 5

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?

Accepted Answer

B's recognized gain or loss is $0 because the sale to a related party (his mother) results in a loss that is not recognized for tax purposes. The loss is the difference between the mother's basis ($5,500) and the sale price to B ($2,100), which is $3,400, but it is not recognized. When B sells the vehicle for $3,200, he has a gain of $1,100 over his purchase price, but this gain is offset by the unrecognized loss, resulting in no recognized gain or loss.

Question 6

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?

Accepted Answer

B's recognized loss is calculated as the difference between the selling price ($2,500) and the original basis ($5,500), resulting in a loss of $3,000. However, due to the wash sale rule, which applies because B purchased identical stock within 30 days before the sale, $1,500 of the loss is disallowed and added to the basis of the new shares. Therefore, the recognized loss is $1,500 ($3,000 - $1,500), and the basis in the new shares is $2,800 ($1,300 + $1,500).

Question 7

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

Accepted Answer

W should proportionally allocate the total sales price to each category of property represented among the assets of the business to determine the amount of gain or loss for each category, as different types of assets may be subject to different tax treatments.

Question 8

Which condition is not true of a wash sale?

Accepted Answer

All the other conditions are true of a wash sale. Choice A states the definition of a wash sale, choice B highlights that there is no real change in economic position for the taxpayer, and choice C mentions that the number of shares purchased and sold may not be the same. Only choice D is incorrect, as the loss can still be deductible, but only to the extent of the difference between the sale price and the repurchase price.

Question 9

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.

Accepted Answer

The gain recognized in the year of sale is calculated as the cash received minus the basis. Cash received is $8,000, and the basis is $30,000. The gain is $40,000 (total sale price) - $30,000 (basis) = $10,000. However, only the cash portion ($8,000) is recognized in the year of sale, leading to a recognized gain of $8,000 - $6,000 (basis allocated to cash) = $2,000.

Question 10

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

Accepted Answer

Unstated interest does not increase the sale price; instead, it represents the portion of the installment payments that is treated as interest for tax purposes, separate from the principal amount of the sale.

Question 11

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

Accepted Answer

For purposes of nondeductible losses on sales to related parties, the IRS defines related parties as including spouses, children, grandchildren, parents, siblings, and certain corporations and partnerships where there is a 50% or greater ownership interest. Therefore, choices A, B, and D are all related parties, but choice C (uncle) is not included in the list of related parties.

Question 12

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

Accepted Answer

The answer of In which transaction did the donor/seller not...

Question 13

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?

Accepted Answer

R realizes a gain of $120,000 on the transaction, which is calculated by subtracting his basis ($130,000) from the amount he sold the property for ($250,000). The fair market value is not relevant for calculating the realized gain in this transaction.

Question 14

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

Accepted Answer

The answer of Liabilities that reduce the amount realized from...

Question 15

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

Accepted Answer

Granting a lien against property to secure a loan does not constitute a disposition of the property. It is merely providing a security interest in the property to the lender, and the ownership or possession of the property does not change hands.

Question 16

Which one of the following losses may be recognized?

Accepted Answer

The correct answer is C because K can recognize a loss of $2,000, which is the difference between the fair market value at the time of the gift ($30,000) and the sale price ($28,000). Losses on sales of property to relatives (choice B) or due to personal use (choice A) are generally not deductible. Choice D is incorrect because the recognized loss is based on the decrease in value from the time of the gift, not the original basis of the giver.

Question 17

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?

Accepted Answer

In a community property state, transactions between spouses are generally not recognized for tax purposes. Therefore, E would not recognize any gain on the sale of the orchard to A.

Question 18

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.)

Accepted Answer

The exchange of substantially identical stocks of publicly held corporations is a taxable event because it may result in a gain or loss that is subject to capital gains tax.

Choice A (conversion of bonds into stock) is not a taxable event if it is done under a conversion privilege contained in the bond instrument.

Choice B (exchange of substantially identical bonds of state or municipal governments) is not a taxable event because these types of bonds are generally exempt from federal income tax.

Choice D (conversion of stock into some other stock of the same corporation pursuant to a right granted under the stock certificate) is not a taxable event as long as the transaction meets certain requirements under Section 1036 of the Internal Revenue Code.

Question 19

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?

Accepted Answer

To calculate the gain realized by M, we need to calculate the cost basis of the silver place settings. 
Cost basis = Purchase price + any improvements - accumulated depreciation
Since this is a family heirloom, we can assume there were no improvements or depreciation. Therefore, the cost basis is the purchase price of $1,600. 
The selling price of the silver place settings is $1,200 cash and an $1,800 note payable to M. So the total selling price is $3,000 ($1,200 + $1,800). 
Gain realized = Selling price - Cost basis
= $3,000 - $1,600
= $1,400

Question 20

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?

Accepted Answer

The answer of H sold a parcel of real estate...

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