TAX PROPERTY PAPER AND CALCULATION

1. Albert purchased a tract of land for $140,000 in 2012 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $180,000. The highway project was abandoned in 2015 and the value of the land fell to $100,000. What is the amount of loss Albert can claim in 2015?

a. 40,000

b. 60,000

c. 80,000

d. 100,000

e. none of the above

 

2. 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. $277,000

b. $282,000

c. $287,000

d. $300,000

e. None of the above

3. Jamie bought her house in 2008 for $395,000. Since then, she has deducted $70,000 in depreciation associated with her home office and has spent $45,000 replacing all the old pipes and plumbing. She sells the house on July 1, 2015. Her realtor charged $34,700 in commissions. Prior to listing the house with the realtor, she spent $300 advertising in the local newspaper. Sammy buys the house for $500,000 in cash, assumes her mortgage of $194,000, and pays property taxes of $4,200 for the entire year on December 1, 2015. What is Jamie’s adjusted basis at the date of the sale and the amount realized?

a. $370,000 adjusted basis; $661,400 amount realized.

b. $370,000 adjusted basis; $661,100 amount realized.

c. $370,000 adjusted basis; $665,200 amount realized.

d. $325,000 adjusted basis; $663,200 amount realized.

e. $325,000 adjusted basis; $694,000 amount realized.

4. Yolanda buys a house in the mountains for $450,000 which 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. $0.

b. $38,000.

c. $70,000.

d. $110,000.

e. None of the above.

5. Steve purchased his home for $500,000. As a sole proprietor, he operates a certified public accounting practice in his home. For this business, he uses one room exclusively and regularly as a home office. In Year 1, $3,042 of depreciation expense on the home office was deducted on his income tax return. In Year 2, Steve sustained losses in his business; therefore, no depreciation was taken on the home office. Had he been allowed to deduct depreciation expense, his depreciation expense would have been $3,175. What is the adjusted basis in the home?

 

a. $493,783

b. $496,825

c. $496,958

d. 500,000

e. None of the above.

6. Sandra’s automobile, which is used exclusively in her trade or business, was damaged in an accident. The adjusted basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra’s adjusted basis for the automobile after the casualty?

a. $0.

b. $7,000.

c. $7,800.

d. $10,200.

e. None of the above.

7. Over the past 20 years, Alfred has purchased 380 shares of Green, Inc., common stock. His first purchase was in 1994 when he acquired 30 shares for $20 a share. In 1999, Alfred bought 150 shares at $10 a share. In 2014, Alfred acquired 200 shares at $50 a share. Alfred intends to sell 125 shares at $60 per share in the current year (2015). If Alfred's objective is to minimize gain and assuming he can adequately identify the shares to be sold, what is his recognized gain?

a. $1,250

b. $3,520

c. $5,950

d. $6,250

e. None of the above.

8. In 2011, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work on the car and he gives it to his daughter Julia in 2015. At this time, the fair market value of the car has declined to $10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with outofpocket costs of $5,000. She later sells the car for $30,000. What is Julia's recognized gain or loss on the sale of the car?

a. $0.

b. $13,000.

c. $15,000.

d. $18,000.

e. None of the above.

9. Ralph gives his daughter, Angela, stock (basis of $8,000; fair market value of $6,000). No gift tax results. If Angela subsequently sells the stock for $10,000, what is her recognized gain or loss?

a. $0.

b. $2,000.

c. $4,000.

d. $10,000.

e. None of the above.

10. Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

a. $0.

b. ($500)

c. ($2,700)

d. $6,500.

e. None of the above.

11. Nancy gives her niece a crane to use in her business with a fair market value of $61,000 and a basis in Nancy's hands of $80,000. No gift tax was paid. What is the niece's basis for depreciation (cost recovery)?

a. $0.

b. $19,000

c. $61,000

d. $80,000.

e. None of the above.

12.Tobin inherited 100 acres of land on the death of his father in 2015. 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). The father had originally acquired the land in 1972 for $19,000 and prior to his death had made permanent improvements of $6,000. What is Tobin's basis in the land?

a. $19,000

b. $25,000

c. $300,000

d. $325,000.

e. None of the above.

13. Neal and his wife Faye reside in Texas, a community property state. Their community property consists of real estate (adjusted basis of $800,000; fair market value of $6 million) and personal property (adjusted basis of $390,000; fair market value of $295,000). Neal dies first and leaves his estate to Faye. What is Faye's basis in the property after Neal's death?

a. $800,000 real estate and $295,000 personal property

b. $800,000 real estate and $390,000 personal property

c. $3,400,000 real estate and $295,000 personal property

d. $6,000,000 real estate and $295,000 personal property.

e. None of the above.

 

14. Robert and Diane, husband and wife, live in Pennsylvania, a common law state. They purchased land as joint tenants in 2011 for $300,000. In 2015, Diane dies and bequeaths her share of the land to Robert. The land has a fair market value of $450,000. What is Robert's adjusted basis for the land?

a. $300,000

b. $375,000

c. $450,000

d. $750,000

e. None of the above.

 

 

15. Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2015, the date of the decedent's death. The executor distributes the land to Kelly on November 12, 2015, at which time the fair market value is $49,000. The fair market value on February 4, 2016, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2016, for $48,000. What is her recognized gain or loss?

a. ($1,000)

b. ($2,000)

c. ($47,000)

d. $1,000

e. None of the above.

 

16. Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which 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?

a. $0 and $105,000

a. $0 and $145,000

c. ($40,000) and $105,000

c. ($40,000) and $145,000

e. None of the above.

17. Karen purchased 100 shares of Gold Corporation stock for $11,500 on January 1, 2012. In the current tax year (2014), she sells 25 shares of the 100 shares purchased on January 1, 2011, for $2,500. Twenty-five days earlier, she had purchased 30 shares for $3,000. What is Karen's recognized gain or loss on the sale of the stock, and what is her basis in the 30 shares purchased 25 days earlier?

a. $ 375 recognized loss, $3,000 basis in new stock

b. $0 recognized loss, $3,000 basis in new stock

c. $0 recognized loss, $3,375 basis in new stock

d. $0 recognized loss, $3,450 basis in new stock

e. None of the above.

18.Lynn purchases a house for $52,000. She converts the property to rental property when the fair market value is $115,000. After deducting depreciation (cost recovery) expense of $1,130, she sells the house for $120,000. What is her recognized gain or loss?

a. $0.

b. $6,130.

c. $37,630.

d. $69,130.

e. None of the above.

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

A.$0 and $350,000.

B.$0 and $450,000.

C.($150,000) and $300,000.

D.($200,000) and $350,000.

E.None of the above

 

19. Dena owns 500 acres of farm land in southeastern Maryland. Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land. She exchanges the land for an office building owned by Chris in Newark, New Jersey. The building has a fair market value of $900,000. Chris assumes Dena's mortgage on the land. What is the amount of Dena's recognized gain or loss on the exchange?

a. $0.

b. $400,000.

c. $500,000.

d. $820,000.

e. None of the above.

20. An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2015. On January 11, 2016, the insurance company paid the owner $450,000. The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $410,000 in a new office building on February 12, 2016, that was smaller than the original office building. What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

A.$0 and $320,000.

B.$0 and $410,000.

C.$40,000) and $320,000.

D.$130,000) and $410,000.

E.None of the above

 

21. A factory building owned by Amber, Inc. is destroyed by a hurricane. The adjusted basis of the building was
$400,000 and the appraised value was $425,000. Amber receives insurance proceeds of $390,000. A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000. What is the recognized gain or loss and what is the basis of the new factory building?

A.$0 and $450,000.

B.$0 and $460,000.

C.($10,000) and $440,000.

D.(10,000) and $450,000.

E.None of the above

22. Carl sells his principal residence, which has an adjusted basis of $150,000 for $200,000. He incurs selling expenses of $20,000 and legal fees of $2,000. He had purchased another residence one month prior to the salefor $380,000. What is the recognized gain or loss and the basis of the replacement residence if the taxpayerelects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?

A.$0 and $380,000.

B.$0and $408,000.

C.$28,000 and $352,000.

D.$28,000 and $380,000.

E.None of the above

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

A.$0; $80,000.

B.$80,000; $150,000.

C.$80,000; $650,000.

D.$330,000; $650,000.

E.None of the above

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