Chapter 13 Property Transactions: Determination Of Gain Or Loss, Basis Considerations, And Nontaxable Exchanges

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Problems
44. LO.1 Anne sold her home for $290,000 in 2016. Selling expenses were $17,400. She purchased it in 2010 for $200,000. During the period of ownership, Anne had done the following:
• Deducted $50,500 office-in-home expenses, which included $4,500 in depreciation. (Refer to Chapter 9.)
• Deducted a casualty loss in 2012 for residential trees destroyed by a hurricane.
The total loss was $19,000 (after the $100 floor and the 10%-of-AGI floor), and
Anne’s insurance company reimbursed her for $13,500. (Refer to Chapter 7.)
• Paid street paving assessment of $7,000 and added sidewalks for $8,000.
• Installed an elevator for medical reasons. The total cost was $20,000, and Anne deducted $13,000 as medical expenses. (Refer to Chapter 10.)
What is Anne’s realized gain?
45. LO.1 Kareem bought a rental house in March 2011 for $300,000, of which $50,000 is allocated to the land and $250,000 to the building. Early in 2013, he had a tennis court built in the backyard at a cost of $7,500. Kareem has deducted $30,900 for depreciation on the house and $1,300 for depreciation on the court. In January
2016, he sells the house and tennis court for $330,000 cash.
a. What is Kareem’s realized gain or loss?
b. If an original mortgage of $80,000 is still outstanding and the buyer assumes the mortgage in addition to the cash payment, what is Kareem’s realized gain or loss?
c. If the buyer takes the property subject to the $80,000 mortgage, rather than assuming it, what is Kareem’s realized gain or loss?
46. LO.1 Norm is negotiating the sale of a tract of his land to Pat. Use the following classification scheme to classify each of the items contained in the proposed sales contract:
Legend
DARN ? Decreases amount realized by Norm
IARN ? Increases amount realized by Norm
DABN ? Decreases adjusted basis to Norm
IABN ? Increases adjusted basis to Norm
DABP ? Decreases adjusted basis to Pat
IABP ? Increases adjusted basis to Pat
a. Norm is to receive cash of $50,000.
b. Norm is to receive Pat’s note payable for $25,000, payable in three years.
c. Pat assumes Norm’s mortgage of $5,000 on the land.
d. Pat agrees to pay the realtor’s sales commission of $8,000.
e. Pat agrees to pay the property taxes on the land for the entire year. If each party paid his or her respective share, Norm’s share would be $1,000 and Pat’s share would be $3,000.
f. Pat pays legal fees of $500.
g. Norm pays legal fees of $750.
47. LO.1, 2 Pam owns a personal use boat that has a fair market value of $35,000 and an adjusted basis of $45,000. Pam’s AGI is $100,000. Calculate the realized and recognized gain or loss if:
a. Pam sells the boat for $35,000.
b. Pam exchanges the boat for another boat worth $35,000.
c. The boat is stolen and Pam receives insurance proceeds of $35,000.
d. Would your answer in part (a) change if the fair market value and the selling price of the boat were $48,000? Explain.
48. LO.1 Chee purchases Tan, Inc. bonds for $108,000 on January 2, 2016. The face value of the bonds is $100,000, the maturity date is December 31, 2020, and the annual interest rate is 5%. Chee will amortize the premium only if he is required to do so. Chee sells the bonds on July 1, 2018, for $106,000.
a. Determine the interest income Chee should report for 2016.
b. Calculate Chee’s recognized gain or loss on the sale of the bonds in 2018.
49. LO.1, 2 Which of the following results in a recognized gain or loss?
a. Kay sells her vacation cabin (adjusted basis of $100,000) for $150,000.
b. Adam sells his personal residence (adjusted basis of $150,000) for $100,000.
c. Carl’s personal residence (adjusted basis of $65,000) is condemned by the city.
He receives condemnation procceds of $55,000.
d. Olga’s land is worth $40,000 at the end of the year. She had purchased the land six months earlier for $25,000.
e. Vera’s personal vehicle (adjusted basis of $22,000) is stolen. She receives $23,000 from the insurance company and does not plan to replace the automobile.
f. Jerry sells used clothing (adjusted basis of $500) to a thrift store for $50.
50. LO.1, 2 Yancy’s personal residence is condemned as part of an urban renewal project. His adjusted basis for the residence is $480,000. He receives condemnation proceeds of $460,000 and invests the proceeds in stocks and bonds.
a. Calculate Yancy’s realized and recognized gain or loss.
b. If the condemnation proceeds are $505,000, what are Yancy’s realized and recognized gain or loss?
c. What are Yancy’s realized and recognized gain or loss in part (a) if the house was rental property?
51. LO.3 Buddy Morgan is a real estate agent for Coastal Estates, a residential real estate development. Because of his outstanding sales performance, Buddy is permitted to buy a lot for $300,000 that normally would sell for $500,000. Buddy is the only real estate agent for Coastal Estates who is permitted to do so.
a. Does Buddy have gross income from the transaction? Explain.
b. What is Buddy’s adjusted basis for the land?
c. Write a letter to Buddy informing him of the tax consequences of his acquisition of the lot. His address is 100 Tower Road, San Diego, CA 92182.
52. LO.1, 2, 3 Karen makes the following purchases and sales of stock:
Transaction Date Number of Shares Company
Price per
Share
Purchase 1-1-2014 300 MDG $ 75
Purchase 6-1-2014 150 GRU 300
Purchase 11-1-2014 60 MDG 70
Sale 12-3-2014 200 MDG 80
Purchase 3-1-2015 120 GRU 375
Sale 8-1-2015 90 GRU 330
Sale 1-1-2016 150 MDG 90
Sale 2-1-2016 75 GRU 500
Assuming that Karen is unable to identify the particular lots that are sold with the original purchase, determine the recognized gain or loss on each type of stock:
a. As of July 1, 2014.
b. As of December 31, 2014.
c. As of December 31, 2015.
d. As of July 1, 2016.
53. LO.1, 2, 3 Kevin purchases 1,000 shares of Bluebird Corporation stock on October
3, 2016, for $300,000. On December 12, 2016, Kevin purchases an additional
750 shares of Bluebird stock for $210,000. According to market quotations,
Bluebird stock is selling for $285 per share on December 31, 2016. Kevin sells 500 shares of Bluebird stock on March 1, 2017, for $162,500.
a. What is the adjusted basis of Kevin’s Bluebird stock on December 31, 2016?
b. What is Kevin’s recognized gain or loss from the sale of Bluebird stock on
March 1, 2017, assuming that the shares sold are from the shares purchased on
December 12, 2016?
c. What is Kevin’s recognized gain or loss from the sale of Bluebird stock on
March 1, 2017, assuming that Kevin cannot adequately identify the shares sold?
54. LO.3 Rod Clooney purchases Agnes Mitchell’s sole proprietorship for $990,000 on
August 15, 2016. The assets of the business are as follows:
Asset Agnes’s Adjusted Basis FMV
Accounts receivable $ 70,000 $ 70,000
Inventory 90,000 100,000
Equipment 150,000 160,000
Furniture and fixtures 95,000 130,000
Building 190,000 250,000
Land 25,000 75,000
Total $620,000 $785,000
a. Calculate Agnes’s realized and recognized gain.
b. Determine Rod’s basis for each of the assets.
c. Write a letter to Rod informing him of the tax consequences of the purchase.
His address is 300 Riverview Drive, Delaware, OH 43015.
55. LO.1, 2, 3 Roberto has received various gifts over the years. He has decided to dispose of the following assets he received as gifts:
a. In 1951, he received land worth $32,000. The donor’s adjusted basis was $35,000. Roberto sells the land for $95,000 in 2016.
b. In 1956, he received stock in Gold Company. The donor’s adjusted basis was $19,000. The fair market value on the date of the gift was $34,000. Roberto sells the stock for $40,000 in 2016.
c. In 1962, he received land worth $15,000. The donor’s adjusted basis was $20,000. Roberto sells the land for $9,000 in 2016.
d. In 2003, he received stock worth $30,000. The donor’s adjusted basis was $42,000. Roberto sells the stock for $38,000 in 2016.
What is the recognized gain or loss from each of the preceding transactions? Assume for each of the gift transactions that no gift tax was paid.
56. LO.1, 2, 3 Nicky receives a car from Sam as a gift. Sam paid $48,000 for the car. He had used it for business purposes and had deducted $10,000 for depreciation up to the time he gave the car to Nicky. The fair market value of the car is $33,000.
a. Assuming that Nicky uses the car for business purposes, what is her basis for depreciation?
b. Assume that Nicky deducts depreciation of $6,500 and then sells the car for $32,500. What is her recognized gain or loss?
c. Assume that Nicky deducts depreciation of $6,500 and then sells the car for $20,000. What is her recognized gain or loss?
57. LO.3 Margo receives a gift of real estate with an adjusted basis of $175,000 and a fair market value of $100,000. The donor paid gift tax of $15,000 on the transfer.
If Margo later sells the property for $110,000, what is her recognized gain or loss?
58. LO.3 On September 18, 2016, Gerald received land and a building from Frank as a gift. Frank’s adjusted basis and the fair market value at the date of the gift are as follows:
Asset Adjusted Basis FMV
Land $100,000 $212,000
Building 80,000 100,000
No gift tax was paid on the transfer.
a. Determine Gerald’s adjusted basis for the land and building.
b. Assume instead that the fair market value of the land was $87,000 and that of the building was $65,000. Determine Gerald’s adjusted basis for the land and building.
59. LO.1, 2, 3, 10 Ira Cook is planning to make a charitable contribution to the Boy
Scouts of Crystal, Inc. stock worth $20,000. The stock has an adjusted basis of $15,000. A friend has suggested that Ira sell the stock and contribute the $20,000 in proceeds rather than contribute the stock.
a. Should Ira follow the friend’s advice? Why or why not?
b. Assume that the fair market value is only $13,000. In this case, should Ira follow the friend’s advice? Why or why not?
c. Rather than make a charitable contribution to the Boy Scouts, Ira is going to make a gift to Nancy, his niece. Advise Ira regarding parts (a) and (b).
d. Write a letter to Ira regarding whether in part (a) he should sell the stock and contribute the cash or contribute the stock. He has informed you that he purchased the stock six years ago. Ira’s address is 500 Ireland Avenue, DeKalb, IL 60115.
60. LO.3 As sole heir, Dazie receives all of Mary’s property (adjusted basis of $1,400,000 and fair market value of $3,820,000). Six months after Mary’s death in 2016, the fair market value is $3,835,000.
a. Can the executor of Mary’s estate elect the alternate valuation date and amount?
Explain.
b. What is Dazie’s basis for the property?
c. Assume instead that the fair market value six months after Mary’s death is $3,800,000. Respond to parts (a) and (b).