Chapter 13

Question 1

_______ gain or loss is the difference between the amount realized from the sale or other dispostiion of property and the property’s adjusted basis on the date of dispostion.

Answer 1

Realized

Question 2

If the amount realized exceeds the property’s adjusted basis, the result is a ________

Answer 2

Realized gain

Question 3

If the property’s adjusted basis exceeds the amount realized, the result is a

Answer 3

Realized Loss

Question 4

The _______ from a sale or other dispostion of property is the sum of any money received plus the fair market value of other property received

Answer 4

Realized amount

*the amount realized also includes any real property taxes treated as imposed on the seller that are actually paid by the buyer

** also includes any liability on the property disposed of, such as a mortgage debt if the buyer assumes the mortgage or the property is sold subject to the mortgage

Question 5

The _______ of property received in a sale or other disposition has been defined by the courts as the price at which property will change hands between a willing seller and a willing buyer neither is compelled to sell or buy.

Answer 5

Fair Market Value

Question 6

In calculating the ______, selling expenses such as advertising, commissions, and legal fees relating to the dispostion are deducted.

Answer 6

amount realized.

Question 7

The _____ of property disposed of is the property’s original basis adjusted to the date of disposition

Answer 7

Adjusted basis

Question 8

______ is the cost or other basis of the property on the date the property is acquired by the taxpayer.

Answer 8

Original Basis

Question 9

_____ increases and ____ decreases the original basis so that on the date of disposition the adjusted basis refelcts the unrecovered cost or other basis of the property.

Answer 9

Capital additions

recoveries of capital

Question 10

____ include the cost of capital improvements and betterments made to the property by the taxpayer

Answer 10

Capital addiitions

Question 11

The following are examples of ______:

• depreciation and cost recovery allowances
• casualties adn thefts
• certain corporate distributions
• amortizable bond premium
• easements

Answer 11

Capital recoveries

Question 12

The amount of depreciation that is subtracted from the original basis is the greater of the ____ or _____ depreciation calculated on an annual basis

Answer 12

allowed

allowable

Question 13

A _____ or ____ may result in the reduction of the adjusted basis of property

Answer 13

Casualty

theft

Question 14

A corporate distribution to a shareholder that is not taxable is treated as a_____, and it reduces the basis of the shareholder’s stock in the corporation

Answer 14

return of capital

Question 15

The basis in a bond purchased at a premium is reduced by the _____ portion of the bond premium

Answer 15

amortizable

Question 16

A _____ is the legal right to use another’s land for a special purpose

Answer 16

easement

Question 17

______ is the amount of the realized gain that is included in the taxpayer’s gross income.

Answer 17

Recognized Gain

Question 18

A _____ is the amount of a realized loss that is deductible for tax purposes

Answer 18

Recognized Loss

Question 19

Under the doctrine, as a general rule, a taxpayer is entitiled to ______ or ____ of property aquired and is not taxed on that amount

Answer 19

recover the cost

other original basis

Question 20

A _____ of property is an exceptino to the general rule for determining basis. It may result when an employer transfers property to an employee at less than the property’s fair market value or when a corporation transfers property to a shareholder at less than the property’s fair market value.

Answer 20

bargain purchase

Question 21

When a taxpayer acquires multiple assets in a lump-sum purchase, the total cost must be _____ among the individual assets

Answer 21

allocated

Question 22

If the dividend is _____ on ____ the cost of the original common shares is allocated to the total shares owned after the dividend

Answer 22

Common on common

Question 23

If the nontaxable stock dividend is ____ on _____, the cost of the original common shares is allocated between the common and preferred shares on the basis of their relative fair market values on the fate of distribution

Answer 23

preferred stock on common

Question 24

The holding period for a nontaxable stock dividend, whether received in the form of common stock or preferred stock, includes ______

Answer 24

the holding period of the original shares.

Question 25

The basis of property acquired from a decendent is generally the ____

Answer 25

propery’s fair market value at the date of death

Question 26

The property’s basis is the fair market value ______ after the death if the executor or administator of the estate elects the alternate valuatoin fate for estate purposes

Answer 26

6 months

* called the alternate valuation amount

Question 27

In the situation of deathbed gifts, in order for the step-up in basis to qualify the period between the donee’s death and the date of the gift must be _______

Answer 27

at least one year

Question 28

The holding period of property acquired from a decedent is deemed to be ____

Answer 28

Long term

Question 29

Section 267 provides that realized losses from sales or exchanges or property, directly or indirectly, between certain related parties are ______

Answer 29

Not recognized

This loss disallowance provision applies to several types of related-party transactions. the most common involve

• members of a family
• individual and a corporation in which the individual owns, directly or indirectly, more than 50% in value of the corporation’s outstanding stock.

Question 30

If income-producing or business property is transferred to a related taxpayer and a loss is disallowed, the basis of the property to the recipient is the ________

Answer 30

property’s cost to the transferee

Question 31

The buyer’s _______ includes only the period of time he or she has held the property

Answer 31

holding period

Question 32

If a taxpayer sells or exchanges stock or securities and within 30 days before or after the date of the sale or exchange acquires substaintially identical stock or securities, any loss realized from the sale or exchange is ________ because the transaction is a ______

Answer 32

not recognized

wash sale

Question 33

Holding period of new stock or securities begins ______ & ________

Answer 33

on the date of acquisition of the old stock or securities

includes the holding period of the orignal

Question 34

Section 1031 provides for nontaxable exchange treatment if the followin grequirements are satisfied:

Answer 34

• the form of the transaction is an exchange
• both the property transferred and the property received are held either for productive use in a trade of business or for investment
• The property is like-kind property
• certain time requirements must be met

**can not be personal property

Question 35

______ includes business for business, business for investment, investment for business, or investment property.

Answer 35

like-kind exchanges

Question 36

Property held for productive use in a business is of a like class only if the exchanged property is withing the ______ or _______

Answer 36

same general business asset class

same product class

Question 37

The transaction must involve a ______ of property to qualify as a like-kind exchange

Answer 37

direct exchange

Question 38

If the exchange is a delayed exchange, there are time limits on its completion. In a delayed like-kind exchange, one party fails to take immediate title to the new property because it has not yet been identified. The code provides that the delayed swap will qualify as a like-kind exchange if these requirements are satisfied:

Answer 38

• the new property must be identified withing 45 days of the date when the old property was transferred (identification period)
• the new property must be received by the earlier of the following (exchange period)
  
  • within 180 days of the date when the old property was transferred
  • the due date (including extension) for the tax return covering the year of the transfer

*** Must meet both identification period & Exchange period

Question 39

Property that is no like-kind property, including cash, is referred to as _____

Answer 39

boot

Question 40

The receipt of boot will trigger recognition of gain if there is a _____

Answer 40

Realized gain

**the amount of the recognized gain is the lesser of the boot received or the realized gain

Question 41

Section 1033 provides that a taxpayer who suffers an involuntary conversion of property may ______

Answer 41

postpone recognition of gain realized from the conversion

Question 42

An _______ results from the destruction, theft, seizure, requisition or condemnation, or sale or exchange under threat or imminence of requisition or condemnation of the taxpayer’s property.

Answer 42

involuntary conversion

Question 43

If either of these requirements are satisfied, the nonrecognition provision of Section 1033 applies to the severence damages:

Answer 43

• The severence damages are used to restore the usability of the remaining property
• the usefulness of the remaning property is destroyed by the condemnation, and the property is solf and replaced at a cost equal to or exceeding the sum of the condemnation award, severance damages, and sales proceeds.

Question 44

With regards to replacement the taxpayer normally has a ______ after the close of the taxable year in which gain is realized from an involuntary conversion to replace property.

Answer 44

2 year period

** This rule affords as much as 3 years from the date of realization of gain to replace the property if the realization of gain took place on the first day of the taxable year. If the involuntary conversion involved the condemnation of real property used in a trade or business or held for investments, a 3 year period is substituted for the normal 2 year period.

Question 45

In regards to a involuntary conversion of a personal residence, if the conversion is a condemnation, the realized loss is _____.

Answer 45

not recognized

**loss from the condemnation of a personal use assets is never recognized.

Question 46

When dealing with involuntary conversion of a personal residence if the conversion is a casualty, theft, or condemnation, the gain may be ____

Answer 46

postponed under section 1033 or excluded under section 121

Question 47

Under Section 121, a Taxpayer can exclude up to _____

Answer 47

$250,000

*$500,000 is file jointly

Question 48

To qualify for the Section 121 exclusion treatment, at the date of the sale, the residence must have been owned and used by the taxpayer for at least _____ years during the ____ year period ending on the date of the sale

Answer 48

2

5

Question 49

Excpetions to the 2 year ownership rule

Answer 49

• Change in place of employment
  
  • no long work at the same location, not always a new job… must be at least 50 miles farther than the old job from home
• health
• to the extent provided in the regulations, other unforseen circumstances

Question 50

The location of the taxpayer’s new employment must be at least __ miles further from the old residence than the old residence was from the old job when you have a change in place of employment.

Answer 50

50

Question 51

For the health exception to apply, health must be the primary reason for the _____ or _____ exchange of the residence.

Answer 51

sale

exchange

Question 52

A _____ applies if there is a physician’s recommendation for a change of residence

(1) to obtain, provide, or facilitate the diagnosis, cure, mitigation, or treatment of disease, illness, or injury, or
(2) to obtain or provide medical or personal care for an individual suffering from a disease, illness, or injury.

Answer 52

safe harbor

Question 53

The amount of the § 121 exclusion on the sale of a principal residence is $____. If the realized gain does not exceed that amount, there is no recognized gain.

Answer 53

$250,000

Question 54

The _____ is the selling price less the selling expenses, which include items such as the cost of advertising the property for sale, real estate broker commissions, legal fees in connection with the sale, and loan placement fees paid by the taxpayer as a condition of arranging financing for the buyer.

Answer 54

amount realized

Question 55

If a married couple files a joint return, the amount is increased to _____ if the following requirements are satisfied:

• Either spouse meets the at-least-two years ____ requirement.
• Both spouses meet the at-least-two-years ____ requirement.
• Neither spouse is ineligible for the § 121 exclusion on the sale of the current prinicpal residence because of the sale of another principal residence within the prior __ years.
• Must be your ____ residence

Answer 55

$500,000

• ownership
• use
• 2
• personal

Question 56

Starting in 2008, a surviving spouse can continue to use the $500,000 exclusion amount on the sale of a personal residence for the next _ years following the year of the deceased spouse’s death.

If the sale occurs in the year of death, however, a ___ return must be filed by the surviving spouse.

If each spouse owns a qualified principal residence, each spouse can ____ qualify for the $250,000 exclusion on the sale of his or her own residence even if the couple files a joint return.

Answer 56

2

joint

separately

Question 57

A ____ §121 exclusion treatment may be available when not all of the statutory requirements are satisfied.

Calculate using formula:

Answer 57

partial

months you qualified **/ **24 X gain exclusion you would qualify for (250,000 or 500,000)

Question 58

Formula for reduction in exclusion for prior use as a vacation home (vacation home converted into personal residence):

Answer 58

# years used as a personal residence X realized gain

years owned

Question 59

Four options when deciding between §121,(exclusion of gain), § 1033 (postponement of gain provision), or using both:

Answer 59

1. Don’t use either
2. Use 121
3. Use 1033
4. Use 121 to exclude gain, which reduced amount of proceeds required to reinvest, then use 1033 and reinvest the remaining amount

Question 60

A realized gain or loss is not recognized upon the sale or other disposition of property in certain cases:

Case involving ______

Losses realized upon the _____, _____, or _____ of personal use assets (as opposed to business or income-producing property) and gains realized upon the sale of residence.

In addition, realized losses from the sale or exchange of business or income-producing property between certain _____ _____ are not recognized.

Answer 60

nontaxable exchanges

sale, exchange, or condemnation

related parties

Question 61

A realized loss from the sale, exchange, or condemnation of personal use assets is ____ ____ for tax purposes.

An exception exists for ____ or ____ losses from personal use assets.

In contrast, any ____ realized from the sale or other disposition of personal use assets is generally, fully taxable.

Answer 61

not recognized

casualty or theft

gain

Question 62

Both the decedent’s share and the survivors’ share of _____ _____ have a basis equal to the fair market value on the date of the decendent’s death.

Answer 62

Community property

Question 63

In a _____ _____ state, only one-hald of jointly held property of spouses is included in the estate.

Survivor _____

+ Decendent ____\_

Survivor new basis

Answer 63

common law

1/2 original cost

1/2 FMV

Question 64

The tax law pevents conversion of personal use asset that has declined in value to business use by specifying that the _____ _____ for loss on personal use assets converted to business or income producing use in the _____ of the property’s adjusted basis or the fair market value on the date of conversion.

The _____ _____ for converted property is the property’s adjusted basis on the date of conversion.

The basis for loss is also the basis for _____ the converted property.

Answer 64

original basis

lower

gain basis

depreciating

Question 65

The _____ of boot does not result in recognition if there is realized loss.

The _____ of boot usually does not trigger recognition. If the boot given is cash, no realized gain or loss is recognized.

If, however, the boot given is appreciated or depreciated property, gain or loss is recognized to the extent of the difference between the _____ _____ and the ____ ____ ____ of the boot.

Appreciated property is defined as property whose adjusted basis is not equal to the ______.

Answer 65

receipt

giving

adjusted basis and the fair market value

fair market value

Question 66

If the conversion is a ____, the realized loss is not recognized.

If the conversion is a ____, the loss is recognized subject to limitations.

Answer 66

Condemnation

Casualty

Question 67

What are the three exceptions to the two-year ownership and use requirement for § 121 (Sale of a resdience)?

Answer 67

1. Change in place of employment
2. Health
3. To the extent provided in the Regulations, other unforseen circumstances