Computational Exercises 13-14

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Computational Exercises

Chapter 13
26. LO.1 Sally owns real property for which the annual property taxes are $9,000. She sells the property to Shelley on March 1 for $550,000. Shelley pays the real property taxes for the entire year on October 1.
a. How much of the property taxes can be deducted by Sally and how much by
Shelley?
b. What effect does the property tax apportionment have on Shelley’s adjusted basis in the property?
c. What effect does the apportionment have on Sally’s amount realized from the sale?
d. How would the answers in parts (b) and (c) differ if the taxes were paid by Sally?
27. LO.1 Melba purchases land from Adrian. Melba gives Adrian $225,000 in cash and agrees to pay Adrian an additional $400,000 one year later plus interest at 5%.
a. What is Melba’s adjusted basis for the land at the acquisition date?
b. What is Melba’s adjusted basis for the land one year later?
28. LO.1 On July 1, 2016, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is
6%. The market rate of interest is 2%.
a. How much interest income and/or interest expense must Katrina report in
2016?
b. What is Katrina’s adjusted basis for the bonds on January 1, 2017?
29. LO.3 Luciana, a nonshareholder, purchases a condominium from her employer for $85,000. The fair market value of the condominium is $120,000. What is Luciana’s basis in the condominium and the amount of any income as a result of this purchase?
30. LO.3 Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of equipment is $108,000. What is Sebastian’s basis in these two assets?
31. LO.3 Juliana purchased land in 2013 for $50,000. She gave the land to Tom, her brother, in 2016, when the fair market value was $70,000. No gift tax is paid on the transfer. Tom subsequently sells the property for $63,000.
a. What is Tom’s basis in the land, and what is his realized gain or loss on the sale?
b. Assume instead that the land has a fair market value of $45,000 and that Tom sold the land for $43,000. Now what is Tom’s basis in the land, and what is his realized gain or loss on the sale?
32. LO.4 Lisa sells business property with an adjusted basis of $130,000 to her son,
Alfred, for its fair market value of $100,000.
a. What is Lisa’s realized and recognized gain or loss?
b. What is Alfred’s recognized gain or loss if he subsequently sells the property for $138,000? For $80,000?
33. LO.4 Arianna’s personal residence has an adjusted basis of $230,000 and a fair market value of $210,000. Arianna converts the personal residence to rental property.
What is Arianna’s gain basis? What is her loss basis?
34. LO.4 Peyton sells an office building and the associated land on May 1, 2016. Under the terms of the sales contract, Peyton is to receive $1,600,000 in cash. The purchaser is to assume Peyton’s mortgage of $950,000 on the property. To enable the purchaser to obtain adequate financing, Peyton is to pay the $9,000 in points charged by the lender. The broker’s commission on the sale is $75,000. The purchaser agrees to pay the $24,000 in property taxes for the entire year. What is
Peyton’s amount realized?
35. LO.6, 10 Andrew owns a lathe (adjusted basis of $40,000) that he uses in his business.
He exchanges the lathe and $20,000 in cash for a new lathe worth $50,000. May Andrew avoid like-kind exchange treatment to recognize his realized loss of $10,000? Explain.
36. LO.6 Sue exchanges a sport-utility vehicle (adjusted basis of $16,000; fair market value of $19,500) for cash of $2,000 and a pickup truck (fair market value of $17,500). Both vehicles are for business use. Sue believes that her basis for the truck is $17,500. In calculating her basis, what has Sue failed to consider?
37. LO.6 Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $85,000) is worth $100,000 and Johnathan’s land has a fair market value of $80,000, Johnathan also gives Logan cash of $20,000.
a. What is Logan’s recognized gain?
b. Assume instead that Johnathan’s land is worth $90,000 and he gives Logan $10,000 cash. Now what is Logan’s recognized gain?
38. LO.7 On June 5, 2016, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of $750,000).
a. What must Brown do to qualify for § 1033 postponement of gain treatment?
b. How would your advice to Brown differ if the adjusted basis was $795,000?
39. LO.7 Camilo’s property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of $180,000 as compensation for the property taken.
a. What is Camilo’s realized and recognized gain?
b. What is the basis of the replacement property?
40. LO.7 On February 24, 2016, Allison’s building, with an adjusted basis of $1.3 million (and used in her trade or business), is destroyed by fire. On March 31, 2016, she receives an insurance reimbursement of $1.65 million for the loss. Allison invests $1.55 million in a new building and buys stock with the balance of insurance proceeds.
Allison is a calendar year taxpayer.
a. By what date must Allison make the new investment to qualify for the nonrecognition election?
b. Assuming that the replacement property qualifies as similar or related in service or use, what is Allison’s realized gain, recognized gain, and basis in the replacement building?
41. LO.8 Gary, who is single, sells his principal residence (owned and occupied by him for seven years) in November 2016 for a realized gain of $148,000. He had purchased a more expensive new residence eight months prior to the sale.
He anticipates that he will occupy this new house as his principal residence for only about 18 additional months. He expects it to appreciate substantially while he owns it. Gary would like to recognize the realized gain on the 2016 sale to offset a large investment loss from the sale of stock. Can he recognize the realized gain of $148,000 on the sale of his principal residence in 2016?
42. LO.8 Constanza, who is single, sells her current personal residence (adjusted basis of $165,000) for $450,000. She has owned and lived in the house for 30 years.
Her selling expenses are $22,500. What is Constanza’s realized and recognized gain?
43. LO.8 On August 31, 2015, Harvey and Margaret, who file a joint return and live in
Charleston, South Carolina, sell their personal residence, which they have owned and lived in for 10 years. The realized gain of $292,000 was excluded under § 121. They purchased another personal residence in Charleston for $480,000 on
September 1, 2015. However, in 2016, Harvey’s employer transfers him to Houston,
Texas. They sell their Charleston home on February 28, 2016, and purchase a new home in Houston. The realized gain on the second sale is $180,000. What is Harvey and Margaret’s recognized gain on the second sale?

Chapter 14
24. LO.2 Dexter owns a large tract of land and subdivides it for sale. Assume that
Dexter meets all of the requirements of § 1237 and during the tax year sells the first eight lots to eight different buyers for $22,000 each. Dexter’s basis in each lot sold is $15,000, and he incurs total selling expenses of $900 on each sale. What is the amount of Dexter’s capital gain and ordinary income?
25. LO.3 Shelia purchases $50,000 of newly issued Gingo Corporation bonds for $45,000. The bonds have original issue discount (OID) of $5,000. After Sheila amortized $2,300 of OID and held the bonds for four years, she sold the bonds for $48,000. What is the amount and character of her gain or loss?
26. LO.3 Olivia wants to buy some vacant land for investment purposes. She cannot afford the full purchase price. Instead, Olivia pays the landowner $8,000 to obtain an option to buy the land for $175,000 anytime in the next four years. Fourteen months after purchasing the option, Olivia sells the option for $10,000. What is the amount and character of Olivia’s gain or loss?
27. LO.3 On May 9, 2016, Glenna purchases 500 shares of Ignaz Company stock for $7,500. On June 30, 2016, she writes a call option on the stock, giving the grantee the right to buy the stock for $9,000 during the following 12-month period.
Glenna receives a call premium of $750 for writing the call. The call is exercised by the grantee on December 15, 2016.
a. What is the amount and character of Glenna’s gain or loss?
b. Assume that the original option expired unexercised. What is the amount and character of Glenna’s gain or loss?
28. LO.4 Shen purchased corporate stock for $20,000 on April 10, 2014. On July 14, 2016, when the stock was worth $12,000, Shen died and his son, Mijo, inherited the stock. Mijo sold the stock for $14,200 on November 12, 2016. What is the amount and character of Mijo’s gain or loss?
29. LO.5 Coline has the following capital gain and loss transactions for 2016.
Short-term capital gain $ 5,000
Short-term capital loss (2,100)
Long-term capital gain (28%) 6,000
Long-term capital gain (15%) 2,000
Long-term capital loss (28%) (10,500)
After the capital gain and loss netting process, what is the amount and character of
Coline’s gain or loss?
30. LO.5 Elliott has the following capital gain and loss transactions for 2016.
Short-term capital gain $ 1,500
Short-term capital loss (3,600)
Long-term capital gain (28%) 12,000
Long-term capital gain (25%) 4,800
Long-term capital gain (15%) 6,000
Long-term capital loss (28%) (4,500)
Long-term capital loss (15%) (9,000)
After the capital gain and loss netting process, what is the amount and character of
Elliott’s gain or loss?
31. LO.7 Lena is a sole proprietor. In April of this year, she sold equipment purchased four years ago for $26,000 with an adjusted basis of $15,500 for $17,000. Later in the year, Lena sold another piece of equipment purchased two years ago with an adjusted basis of $8,200 for $5,500. What is the amount and character of Lena’s gain or loss?
32. LO.9 Renata Corporation purchased equipment in 2014 for $180,000 and has taken $83,000 of regular MACRS depreciation. Renata Corporation sells the equipment in 2016 for $110,000. What is the amount and character of Renata’s gain or loss?
33. LO.9 Jacob purchased business equipment for $56,000 in 2013 and has taken $35,000 of regular MACRS depreciation. Jacob sells the equipment in 2016 for $26,000. What is the amount and character of Jacob’s gain or loss?
34. LO.7, 8, 9 Sissie owns two items of business equipment. Both were purchased in
2012 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering selling these assets in 2016.
One of them is worth $60,000, and the other is worth $23,000. Because both items were used in her business, Sissie simply assumes that the loss on one will offset the gain from the other and that the net gain or loss will increase or reduce her business income. What is the amount and character of Sissie’s gain or loss?
35. LO.10 An apartment building was acquired in 2007. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of 25% gain?
36. LO.10 Enzo is a single taxpayer with the following gains and losses for 2016:
• $2,100 short-term capital loss.
• $24,000 long-term capital gain from sale of stock.
• $14,000 § 1231 gain that is all unrecaptured § 1250 gain.
What is the amount and character of Enzo’s gain or loss?
37. LO.11 In a § 1031 like-kind exchange, Rafael exchanges a piece of equipment that originally cost $200,000. On the date of the exchange, the equipment given up has an adjusted basis of $85,000 and a fair market value of $110,000. Rafael pays $15,000 and receives equipment with a fair market value of $125,000. What is the amount and character of Rafael’s gain or loss?