Property Transactions

Question 1

Sebastian purchases two pieces of equipment for $169,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $118,300 and that of the second piece of equipment is $185,900. What is Sebastian’s basis in these two assets?

Answer 1

Sebastian’s basis for the first piece of equipment is $65,910 and $103,090 for the second piece of equipment.

Basis, Equipment A
$118,300 / (118,300 + 185,900) = 0.39
$169,000 * 0.39 = $65,910

Basis, Equipment B
$185,900 / (118,300 + 185,900) = 0.61
$169,00 * 0.61 = $103,090

Question 2

Juliana purchased land three years ago for $106,300. She made a gift of the land to Tom, her brother, in the current year, when the fair market value was $148,820. No Federal gift tax is paid on the transfer. Tom subsequently sells the property for $133,938.

Answer 2

Tom’s basis in the land is $106,300 and he has a realized gain of $27,638 on the sale.

Note: The basis is the lesser of purchase price or FMV. The realized gain/loss is the difference between the selling price less the property basis.

Question 3

Juliana purchased land three years ago for $106,300. She made a gift of the land to Tom, her brother, in the current year, when the fair market value was $95,670. No Federal gift tax is paid on the transfer. Tom subsequently sells the property for $90,887.

Answer 3

Tom’s basis in the land is $95,670 and he has a realized loss of $4,783 on the sale.

Note: The basis is the lesser of purchase price or FMV. The realized gain/loss is the difference between the selling price less the property basis.

Question 4

Ashley inherited all of the property of her aunt Elena, who died last year. Elena’s adjusted basis for the property at the date of death was $1,795,000. The property’s fair market value was $6,282,500 at the date of death and $7,180,000 six months after the date of death.

What is Ashley’s adjusted basis of the property?

Answer 4

The adjusted property basis is equal to the FMV at the time of death. Therefore, the adjusted basis is $6,282,5000.

Question 5

Juan owned 200 shares of Circle Corporation stock (adjusted basis of $172,000). He sold 100 shares for $68,800. Twenty days later he purchased 100 shares of the same stock for $51,600. What is Juan’s realized and recognized loss?

What is the basis in the newly acquired shares?

Answer 5

Juan records a realized loss of $17,200 of which $0 is recognized. His basis in the newly acquired stock is $68,800.

Realized Gain/(Loss)

$68,800 selling price - (172,000 adjusted basis X (100 shares sold/200 shares owned)) = ($17,200) realized loss

Basis of Acquired Stock

$51,600 purchase price + 17,200 disallowed loss = $68,800 basis

Question 6

Arianna’s personal residence has an adjusted basis of $319,700 and a fair market value of $287,730. Arianna converts the personal residence to rental property. What is Arianna’s gain basis? What is her loss basis?

Answer 6

Arianna’s basis for gain is $319,700 and her basis for loss is $287,730.

Note: The gain basis is always the adjusted property basis. However, the loss basis is the lesser of the adjusted basis or FMV on the date of conversion.

Question 7

Mahan purchases 1,000 shares of Bluebird Corporation stock on October 3, 2021, for $205,000. On December 12, 2021, Mahan purchases an additional 750 shares of Bluebird stock for $143,500. According to market quotations, Bluebird stock is selling for $205 per share on 12/31/21. Mahan sells 500 shares of Bluebird stock on March 1, 2022, for $114,800.

What is the adjusted basis of Mahan’s Bluebird stock on December 31, 2021?

Answer 7

The adjusted basis is the sum of all owned shares, $348,500.

Calculation:

$205,000 + 143,500 = $348,500

Question 8

Mahan purchases 1,000 shares of Bluebird Corporation stock on October 3, 2021, for $205,000. On December 12, 2021, Mahan purchases an additional 750 shares of Bluebird stock for $143,500. According to market quotations, Bluebird stock is selling for $205 per share on 12/31/21. Mahan sells 500 shares of Bluebird stock on March 1, 2022, for $114,800.

What is Mahan’s recognized gain or loss from the sale of Bluebird stock on March 1, 2022, assuming the shares sold are from the shares purchased on December 12, 2021?

Answer 8

Mahan’s recognized gain is $19,300.

Calculation:

$143,500 purchase price / 750 shares purchased = $191 per share

$114,800 selling price - ($191 share price X 500 shares sold) = $19,300

Question 9

Mahan purchases 1,000 shares of Bluebird Corporation stock on October 3, 2021, for $205,000. On December 12, 2021, Mahan purchases an additional 750 shares of Bluebird stock for $143,500. According to market quotations, Bluebird stock is selling for $205 per share on 12/31/21. Mahan sells 500 shares of Bluebird stock on March 1, 2022, for $114,800.

What is Mahan’s recognized gain or loss from the sale of Bluebird stock on March 1, 2022, assuming Mahan cannot adequately identify the shares sold?

Answer 9

Mahan has a recognized gain of $12,300.

Calculation:

$205,000 purchase price / 1,000 shares purchased = $205 per share

$114,800 - ($205 share price X 500 shares sold) = $12,300

Note: When the specific shares sold cannot be identified then the share price is computated using the FIFO method.

Question 10

Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $100,500) is worth $120,600 and Johnathan’s land has a fair market value of $95,475, Johnathan also gives Logan cash of $25,125.

Answer 10

Logan’s recognized gain is $20,100.

Calculation:

$95,475 FMV + 25,125 cash proceeds = $120,600 amount realized - 100,500 adjusted basis = $20,100 realized gain

Note: Recognized gain is the lesser of the realized gain or cash proceeds.

Question 11

Logan and Johnathan exchange land, and the exchange qualifies as like kind under § 1031. Because Logan’s land (adjusted basis of $100,500) is worth $108,540 and Johnathan’s land has a fair market value of $95,475, Johnathan also gives Logan cash of $12,060.

Answer 11

Logan’s recognized gain is $12,060.

Calculation:

$108,540 selling price + 12,060 cash proceeds = $120,600 amount realized - 100,500 adjusted basis = $20,100 realized gain

Note: Recognized gain is the lesser of the realized gain or cash proceeds.

Question 12

Camilo’s property, with an adjusted basis of $212,200, is condemned by the state. Camilo receives property with a fair market value of $244,030 as compensation for the property taken.

What is Camilo’s realized and recognized gain?

Answer 12

Camilo’s realized gain is $31,830 and his recognized gain is $0.

Calculation:

$244,030 FMV - 212,200 adjusted basis - $31,830 realized gain. Condemned properties carry a nonrecognition of gain.

Question 13

Camilo’s property, with an adjusted basis of $212,200, is condemned by the state. Camilo receives property with a fair market value of $244,030 as compensation for the property taken.

What is the basis of the replacement property?

Answer 13

The basis of the replacement property is $212,200.

Note: The adjusted basis of condemned property becomes the basis of the replacement property.

Question 14

Constanza, who is single, sells her current personal residence (adjusted basis of $208,500) for $583,800. She has owned and lived in the house for 30 years. Her selling expenses are $29,190.

What is Constanza’s realized and recognized gain?

Answer 14

Constanza’s realized gain is $346,100 and her recognized gain would be $96,110.

Calculation:

$583,800 selling price - 29,190 selling expenses = $554,610 amount realized - 208,500 adjusted basis = $346,100 realized gain - 250,000 IRC § 121 exclusion = $96,110 recognized gain

Question 15

Katrina owns undeveloped land with an adjusted basis of $292,500. She exchanges it for undeveloped land worth $650,000. Assume that Katrina holds the land as an investment.

What are Katrina’s realized and recognized gain or loss?

Answer 15

Her realized gain is $__357,500 and her recognized gain is $0.

Question 16

Katrina owns undeveloped land with an adjusted basis of $292,500. She exchanges it for undeveloped land worth $650,000. Assume that Katrina holds the land as an investment.

What is Katrina’s basis in the undeveloped land she receives?

Answer 16

$292,500

Question 17

Katrina owns undeveloped land with an adjusted basis of $292,500. She exchanges it for undeveloped land worth $650,000. Assume that Katrina holds the land as an investment.

Would the answers in part (a) and (b) change if Katrina exchanged the undeveloped land for land and a building?

Answer 17

No, because the property is like-kind property.

Question 18

Abby sells real property for $300,000. The buyer pays $5,000 in property taxes that had accrued during the year while the property was still legally owned by Abby. In addition, Abby pays $15,000 in commissions and $3,000 in legal fees in connection with the sale. How much does Abby realize (the amount realized) from the sale of her property?

a. $300,000
b. $277,000
c. $282,000
d. $287,000

Answer 18

d. $287,000

=$300,000 selling price + 5,000 property tax - 15,000 commissions - 3,000 legal fees

Question 19

Yolanda buys a house in the mountains for $450,000 that she uses as her personal vacation home. She builds an additional room on the house for $40,000. She sells the property for $560,000 and pays $28,000 in commissions and $4,000 in legal fees in connection with the sale. What is the recognized gain or loss on the sale of the house?

a. $110,000
b. $70,000
c. $0
d. $38,000

Answer 19

d. $38,000

=$560,000 selling price - 28,000 commissions - 4,000 legal fees - 450,000 purchase price - 40,000 additional improvements

Question 20

Katie sells her personal use automobile for $12,000. She purchased the car three years ago for $25,000. What is Katie’s recognized gain or loss?

a. ($13,000)
b. $0
c. ($25,000)
d. $12,000

Answer 20

b. $0

Recognized gain/(loss) = $12,000 selling price - 25,000 purchase price = ($13,000) loss. However, losses on the sell of vehicles are null.

Question 21

The holding period of property acquired by gift may begin on:

a. The date of gift only
b. The last day of the tax year in which the property was originally acquired by the donor.
c. The date the property was acquired by the donor only
d. Either the date the property was acquired by the donor of the date of gift

Answer 21

d. Either the date the property was acquired by the donor of the date of gift

Question 22

Tobin inherited 100 acres of land on the death of his father this year. A Federal estate tax return was filed and the land was valued at $300,000 (its fair market value at the date of the death). Tobin’s father originally acquired the land years ago for $19,000 and prior to his death made permanent improvements of $6,000. What is Tobin’s basis in the land?

a. $25,000
b. $300,000
c. $19,000
d. $325,000

Answer 22

b. $300,000

Question 23

Alissa exchanges land with an adjusted basis of $22,000 and a fair market value of $30,000 for another parcel of land with a fair market value of $28,000 and $2,000 cash. What is Alissa’s recognized gain or loss?

a. $0
b. $6,000
c. $2,000
d. $8,000

Answer 23

c. $2,000

Question 24

Martin exchanges a warehouse for a building he will use as an office building. The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000. In addition, Martin receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?

a. ($200,000) and $350,000
b. $0 and $350,000
c. ($150,000) and $300,000
d. $0 and $450,000

Answer 24

d. $0 and $450,000

Question 25

Francisco was transferred from Phoenix to Atlanta. He sold his Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000. Francisco had owned and lived in the Phoenix residence for six years. What is his recognized gain or loss on the sale of the Phoenix residence and his basis for the residence in Atlanta?

a. $0 and $425,000
b. $0 and $375,000
c. ($50,000) and $375,000
d. ($50,000) and $325,000

Answer 25

b. $0 and $375,000

Question 26

Danielle, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2021, enters into a contract to sell on July 12, 2021, and sells (i.e., the closing date) the residence on August 1, 2021. The realized gain on the sale is $225,000. Which date is the appropriate ending date in determining if the residence has been owned and used by the Danielle as the principal residence for at least two years during the prior five-year period?

a. July 12, 2021
b. August 1, 2021
c. February 7, 2021
d. December 31, 2021

Answer 26

b. August 1, 2021

Question 27

Brian and Becca have been married and living together in Brian’s home for 6 years. He lived in the home alone for 20 years prior to their marriage. They sell the home, which has an adjusted basis of $120,000, for $700,000. Brian and Becca plan to use the § 121 exclusion (exclusion of gain on sale of principal residence). In Becca’s prior marriage to Dan, Dan sold his principal residence and used the § 121 exclusion. Becca and Dan filed joint returns during their seven years of marriage. They had lived in Dan’s house throughout their marriage. Dan’s sale had occurred one year prior to the divorce. Brian and Becca purchase a replacement residence for $650,000 one month after the sale of their home. What is the recognized gain and basis for the new home?

a. $80,000; $150,000
b. $330,000; $650,000
c. $0; $80,000
d. $80,000; $650,000

Answer 27

d. $80,000; $650,000