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Exam 13: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

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Question 21

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Marilyn owns 100% of the stock of Lilac, Inc., with an adjusted basis of $45,000. She receives a cash distribution of $160,000 from Lilac when its earnings and profits are $90,000. a. What is Marilyn's dividend income? b. What is Marilyn's recognized gain or loss? c. What is Marilyn's adjusted basis for her stock after the distribution?

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a. and b. The $160,000 distrib...

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Question 22

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Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

A) Partnership interest for a partnership interest.
B) Inventory for inventory.
C) Securities for personalty.
D) Business realty for investment realty.

E) A) and B)
F) C) and D)

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Question 23

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Under the Internal Revenue Code, the holding period for property acquired by inheritance is always:

The carryover basis to a donee for property received by gift can be an amount greater than the donor's adjusted basis.

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.

Which of the following is correct?

For nontaxable stock rights where the fair market value of the rights is 15% or more of the fair market value of the stock, the taxpayer is required to allocate a portion of the stock basis to the stock rights.

An involuntary conversion results from the destruction (complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Joyce, a farmer, has the following events occur during the tax year. Which of the events qualifies for nonrecognition of gain from an involuntary conversion?

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

Robert sold his ranch, which was his principal residence, during the current taxable year. At the date of the sale, the ranch had an adjusted basis of $460,000 and was encumbered by a mortgage of $200,000. The buyer paid him $500,000 in cash, agreed to take the title subject to the $200,000 mortgage, and agreed to pay him $100,000 with interest at 6 percent one year from the date of sale. How much is Robert's realized gain on the sale?

The exchange of unimproved real property located in Topeka, KS, for improved real property located in Atlanta, GA, does not qualify as a like-kind exchange.

For a corporate distribution of cash or other property to a shareholder, when does dividend income or a return of capital result?

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

Discuss the application of holding period rules to property acquired by gift and inheritance.

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) that he sells to his son, Ned, for its fair market value of $105,000. What is Arthur's recognized gain or loss and Ned's basis in the land?

Omar has the following stock transactions during 2019: $\begin{array}{lccc}\text { Stock }&\text { Date }&\text { Number of }&\text { Number of }&\text { Basis }&\text { Selling Price }\\&\text { Purchased /Sold }&\text { Shares/Sold }&\text { Shares }\\&&&\text { Purchased }\\\text { Orange } & 1 / 2017 && 100 & \$ 1,000 \\\text { Blue } & 6 / 2017 && 200 & 3,000 \\\text { Yellow } & 4 / 2018 && 50 & 1,250\end{array}$ $\begin{array}{lccccc}\text { Blue } & 2 / 2019 & & 150 & 1,800 & \\\text { Yellow } & 3 / 2019 & & 175 & 5,250 & \\\text { Blue } & 7 / 2019 & 250 & & & \$ 3,500 \\\text { Yellow } & 11 / 2019 & 200 & & & 7,200\end{array}$ a. What is Omar's recognized gain or loss on the stock sales if his objective is to minimize the recognized gain and to maximize the recognized loss? b. What is Omar's recognized gain or loss if he does not identify the shares sold?

The holding period for nontaxable stock dividends that are the same type (i.e., common on common) includes the holding period of the original shares, but the holding period for nontaxable stock dividends that are not the same type (i.e., preferred on common) is new and begins on the date the dividend is received.

To qualify for the § 121 exclusion, the property must have been used by the taxpayer for the five years preceding the date of sale and owned by the taxpayer as the principal residence for the last two of those years.

Jake exchanges an airplane used in his business for a smaller airplane also to be used in his business. His adjusted ba $325,000 and the fair market value is $310,000. The fair market value of the smaller airplane is $300,000. In addition, Jake receives cash of $10,000. Calculate Jake's realized and recognized gain or loss and his adjusted basis for the as