Question 1

On the sale of property between related parties,realized gains are recognized whereas realized losses are disallowed.

Accepted Answer

This is because transactions between related parties may not reflect fair market value and could be used to manipulate tax liabilities. To prevent this, the IRS disallows any realized losses on such transactions. However, realized gains are still recognized and subject to taxation.

Question 2

The basis of property acquired in a bargain purchase is the cost of the asset.The bargain amount (fair market value - cost)is recognized when the asset is sold.

Accepted Answer

The basis of property acquired in a bargain purchase is the fair market value on the date of acquisition. The bargain amount (fair market value - cost) is recognized as a gain immediately. It is not recognized when the asset is sold.

Question 3

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Accepted Answer

If the adjusted basis of the property exceeds the property's fair market value at the date of the gift, the recipient's basis for loss purposes is equal to the property's fair market value at the date of the gift. This is known as the loss basis. On the other hand, the recipient's basis for gain purposes is equal to the donor's adjusted basis at the date of the gift, which may be higher than the fair market value. Therefore, the loss basis and gain basis will differ in this scenario.

Question 4

The basis of property received by gift is always a carryover basis.

Accepted Answer

The answer of The basis of property received by gift...

Question 5

This year,Fran receives a birthday gift of stock worth $75,000 from her aunt.The aunt has owned the stock (adjusted basis $50,000)for 10 years and pays gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

Accepted Answer

The answer of This year,Fran receives a birthday gift of...

Question 6

Parker bought a brand new Ferrari on January 1,2012,for $125,000.Parker was fatally injured in an auto accident on June 23,2012,when the fair market value of the car was $105,000.Parker was driving a loaner car from the Ferrari dealership while his car was being serviced.In his will,Parker left the Ferrari to his best friend,Ryan.Ryan's holding period for the Ferrari begins on June 23,2012.

Accepted Answer

The answer of Parker bought a brand new Ferrari on...

Question 7

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold,he should use either a weighted average approach or a LIFO approach.

Accepted Answer

The answer of When a taxpayer has purchased several lots...

Question 8

Cassie purchases a sole proprietorship for $145,000.The fair market value of the tangible assets is $110,000 and the agreed to value of goodwill is $10,000.Assuming there are no other intangible assets,Cassie's basis for the tangible assets is $132,917 ($110,000 + $22,917)and her basis for the goodwill is $12,083 ($10,000 + $2,083).

Accepted Answer

The answer of Cassie purchases a sole proprietorship for $145,000.The...

Question 9

If the fair market value of the property on the date of death is greater than on the alternate valuation date,the use of the alternate valuation amount is mandatory.

Accepted Answer

The use of the alternate valuation date is optional and can only be elected if the fair market value on the alternate date is lower than the fair market value on the date of death.

Question 10

If the alternate valuation date is elected by the executor of the estate,the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

Accepted Answer

The answer of If the alternate valuation date is elected...

Question 11

A donee receives depreciable property worth $85,000 (basis to donor of $150,000)with no gift tax being paid on the transfer.The donee's basis for depreciation purposes is $85,000.

Accepted Answer

The answer of A donee receives depreciable property worth $85,000...

Question 12

For the loss disallowance provision under § 267,related parties include certain family members,a shareholder and his or her controlled corporation (i.e.,greater than 50% in value of the corporation's outstanding stock),and a partner and his or her controlled partnership (i.e.,greater than 50% of the capital interests or profits interest in the partnership).

Accepted Answer

The statement is correct. Under § 267, related parties include certain family members, a shareholder and his or her controlled corporation, and a partner and his or her controlled partnership.

Question 13

Purchased goodwill is assigned a basis equal to cost,and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.

Accepted Answer

Developed or self-created goodwill is not assigned a basis equal to one-fifteenth of the amount expended. This statement is false. Instead, developed or self-created goodwill is not recognized as an asset under generally accepted accounting principles (GAAP) in the United States.

Question 14

The holding period for property acquired by gift is automatically long term.

Accepted Answer

The holding period for property acquired by gift includes the time the property was held by the donor, not automatically making it long-term. It depends on the combined holding period of the donor and the recipient.

Question 15

Nontaxable stock dividends result in no change to the total basis of the old and new stock,but the basis per share decreases.

Accepted Answer

Nontaxable stock dividends do not result in any change to the total basis of the old and new stock because they do not involve any cash outflow. However, the basis per share decreases because the total basis is now allocated over a greater number of shares.

Question 16

The basis of inherited property usually is its fair market value on the date of the decedent's death.

Accepted Answer

This is known as step-up basis, where the value of the property is reset to its fair market value at the time of the decedent's death, rather than its original purchase price.

Question 17

If losses are disallowed in a related party transaction,the holding period for the buyer includes the holding period of the seller.

Accepted Answer

In a related-party transaction where losses are disallowed, the holding period for the buyer does not include the holding period of the seller. The holding period starts anew with the buyer.

Question 18

If the alternate valuation date is elected by the executor in 2012,the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

Accepted Answer

The answer of If the alternate valuation date is elected...

Question 19

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

Accepted Answer

This is true according to IRS regulations. The holding period for nontaxable stock rights is determined by adding the holding period of the stock on which the rights were distributed to the holding period of the rights themselves.

Question 20

If a husband inherits his deceased wife's share of jointly owned property in a common law state,both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.

Accepted Answer

In a common law state, only the deceased's share of the property receives a step-up (or down) in basis to the fair market value at the date of death. The surviving spouse's original share retains its original basis.

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

On the sale of property between related parties,realized gains are recognized whereas realized losses are disallowed.

The basis of property acquired in a bargain purchase is the cost of the asset.The bargain amount (fair market value - cost)is recognized when the asset is sold.

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

The basis of property received by gift is always a carryover basis.

This year,Fran receives a birthday gift of stock worth $75,000 from her aunt.The aunt has owned the stock (adjusted basis $50,000)for 10 years and pays gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold,he should use either a weighted average approach or a LIFO approach.

If the fair market value of the property on the date of death is greater than on the alternate valuation date,the use of the alternate valuation amount is mandatory.

If the alternate valuation date is elected by the executor of the estate,the basis of all of the property included in the decedent's estate becomes the fair market value 6 months after the decedent's death.

A donee receives depreciable property worth $85,000 (basis to donor of $150,000)with no gift tax being paid on the transfer.The donee's basis for depreciation purposes is $85,000.

Purchased goodwill is assigned a basis equal to cost,and developed or self-created goodwill is assigned a basis equal to one-fifteenth of the amount expended.

The holding period for property acquired by gift is automatically long term.

Nontaxable stock dividends result in no change to the total basis of the old and new stock,but the basis per share decreases.

The basis of inherited property usually is its fair market value on the date of the decedent's death.

If losses are disallowed in a related party transaction,the holding period for the buyer includes the holding period of the seller.

If the alternate valuation date is elected by the executor in 2012,the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

The holding period of nontaxable stock rights includes the holding period of the stock on which the rights were distributed.

If a husband inherits his deceased wife's share of jointly owned property in a common law state,both the husband's original share and the share inherited from the deceased wife are stepped-up or down to the fair market value at the date of the wife's death.