Question 1

Realized gain or loss is measured by the difference between the amount realized from the sale or other disposition of property and the property's adjusted basis at the date of disposition.

Accepted Answer

This is the correct definition of realized gain or loss according to the IRS.

Question 2

If the amount of a corporate distribution is less than the amount of the corporate earnings and profits,the return of capital concept does not apply and the shareholders' adjusted basis for the stock remains unchanged.

Accepted Answer

This is correct. If a corporate distribution is less than the amount of corporate earnings and profits, the return of capital concept does not apply and shareholders' adjusted basis for the stock remains unchanged. Only if the distribution exceeds earnings and profits does the return of capital concept apply, and the shareholders' adjusted basis is reduced by the amount of the distribution that exceeds earnings and profits.

Question 3

In a casualty or theft,the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

Accepted Answer

This statement is true. When there is a casualty or theft and insurance proceeds are received, the basis of the property involved is reduced by the amount of those proceeds as well as any resulting recognized loss.

Question 4

The amount of a corporate distribution qualifying for capital recovery treatment which exceeds the shareholder-recipient's basis in the stock investment is treated as a capital gain.

Accepted Answer

This statement is true. If a corporate distribution (such as a dividend or liquidation payment) exceeds the shareholder's basis in the stock, the excess amount is treated as a capital gain for tax purposes. This is known as a "capital gain distribution" and is reported on the shareholder's tax return accordingly.

Question 5

A realized gain whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Accepted Answer

When a realized gain is not immediately recognized but instead postponed, the taxpayer is able to temporarily hold onto more than just their cost or other basis. This is because the gain has not yet been taxed and the taxpayer is able to defer the recognition and taxation of the gain until a later year.

Question 6

The fair market value of property received in a sale or other disposition is the price at which property will change hands between a willing seller and a willing buyer when neither is compelled to sell or buy.

Accepted Answer

This is the definition of fair market value according to the IRS.

Question 7

Reggie owns all the stock of Amethyst,Inc.(adjusted basis of $100,000).If he receives a distribution from Amethyst of $90,000 and corporate earnings and profits are $15,000,Reggie has a capital gain of $5,000 and an adjusted basis for his Amethyst stock of $0.

Accepted Answer

The distribution of $90,000 to Reggie is first applied against the earnings and profits of Amethyst, Inc., which are $15,000. This portion is treated as a dividend. The remaining $75,000 reduces Reggie's basis in the stock. Since his original basis was $100,000, after the distribution, his adjusted basis in the Amethyst stock would be $25,000 ($100,000 - $75,000), not $0. There is no capital gain because the distribution does not exceed his basis in the stock.

Question 8

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800,she has amortized $300 of the premium.Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

Accepted Answer

Helen's recognized gain would be $100, not $800. The adjusted basis of the bond would be $10,700 ($10,000 purchase price + $1,000 premium - $300 amortized premium), making the gain $100 ($10,800 sale price - $10,700 adjusted basis).

Question 9

If Wal-Mart stock increases in value during the tax year by $6,000,the amount realized is a positive $6,000.

Accepted Answer

The amount realized refers to the total amount received from a sale transaction. If Wal-Mart stock increases in value but is not sold, there is no transaction, and thus no amount realized. The $6,000 increase is an unrealized gain, not an amount realized.

Question 10

If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.

Accepted Answer

The answer of If a seller assumes the buyer's liability...

Question 11

If the buyer assumes the seller's liability on the property acquired,the seller's amount realized is decreased by the amount of the liability assumed.

Accepted Answer

The seller's amount realized is increased by the amount of the liability assumed by the buyer, as it effectively adds to the total consideration received for the property.

Question 12

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Accepted Answer

Ordinary repairs and maintenance expenses are considered as deductible expenses in the year they are incurred and are not added to the original basis of the property. On the other hand, capital expenditures, which are incurred to improve the property or to increase its useful life, are added to the original basis of the property.

Question 13

If insurance proceeds are received for property used in a trade or business,a casualty transaction can result in recognized gain,but cannot result in a recognized loss.

Accepted Answer

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain or loss depending on the amount of insurance proceeds received and the adjusted basis of the property. If the insurance proceeds exceed the adjusted basis, a recognized gain can occur. If the insurance proceeds are less than the adjusted basis, a recognized loss can occur.

Question 14

A realized loss whose recognition is postponed results in the temporary recovery of more than the taxpayer's cost or other basis.

Accepted Answer

A realized loss whose recognition is postponed does not result in the recovery of more than the taxpayer's cost or other basis; it merely delays the recognition of the loss for tax purposes, not allowing for any recovery beyond the original investment.

Question 15

In computing the amount realized when the fair market value of the property received cannot be determined,the fair market value of the property surrendered may be used.

Accepted Answer

According to the Internal Revenue Code, if the fair market value of the property received in an exchange cannot be determined, then the fair market value of the property surrendered shall be used to determine the amount realized.

Question 16

A realized gain on the sale or exchange of a personal use asset is recognized,but a realized loss on the sale,exchange,or condemnation of a personal use asset is not recognized.

Accepted Answer

This is true according to the IRS. Personal use assets include items such as a primary residence, vehicle, or personal belongings. A gain on the sale or exchange of these assets is taxable, but any loss cannot be used as a deduction on income tax returns.

Question 17

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

Accepted Answer

When an amortization election is made for a taxable bond purchased at a premium, the adjusted basis of the bond is reduced, and the amount of the amortized premium is treated as an interest deduction. This results in a lower taxable income and potentially lower taxes owed.

Question 18

Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000,his adjusted basis for the delivery truck after the accident is $21,000.

Accepted Answer

The answer of Monroe's delivery truck is damaged in an...

Question 19

Milton purchases land and a factory building for his business for $300,000 with $100,000 being allocated to the land.During the first year,Milton deducts cost recovery of $4,922.Milton's adjusted basis for the building at the end of the first year is $195,078 ($200,000 - $4,922).

Accepted Answer

The calculation is correct. Milton purchased land and a factory building for $300,000 with $100,000 allocated to the land. Therefore, the adjusted basis for the building is $200,000. After deducting the cost recovery of $4,922 in the first year, the adjusted basis for the building becomes $195,078.

Question 20

The amount received for a utility easement on land is included in the gross income of the taxpayer.

Accepted Answer

The answer of The amount received for a utility easement...

Quiz 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxabl