CHAPTER 14–PROPERTY TRANSACTIONS

| November 9, 2018

100.If personal use property is converted to
business use:

A.
Gain is recognized on the date of conversion to
the extent of the excess of the fair market value over the adjusted basis.

B.
Loss is recognized on the date of conversion to
the extent of the excess of the adjusted basis over the fair market value.

C.
The basis for gain is the lower of the taxpayer’s
adjusted basis or the fair market value at the date of conversion.

D.
The basis for loss is the taxpayer’s adjusted
basis on the date of conversion.
E.
None of the above is correct.

101.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.

102.Louis sold his farm during the current taxable year. At
the date of the sale, the farm had an adjusted basis of $212,000 and was
encumbered by a mortgage of $190,000. The buyer paid him $110,000 in cash,
agreed to take the title subject to the $190,000 mortgage, and agreed to pay
him $80,000 with interest at 9 percent one year from the date of sale. How much
is Louis’ recognized gain on the sale?

15

103.Albert
is considering two options for selling land for which he has an adjusted basis
of $70,000 and on which there is a mortgage of $100,000. Under the first
option, Albert will sell the land for $150,000 with a stipulation in the sales
contract that he liquidate the mortgage before the sale is complete. Under the
second option, Albert will sell the land for $50,000 and the buyer will assume
the mortgage. Calculate Albert’s recognized gain under both options.

104.Annette purchased stock on March 1, 2010, for $32,000. At
December 31, 2010, it was worth $29,000. She also purchased a bond on September
1, 2010, for $9,000. At year end, it was worth $12,000. Determine Annette’s
realized and recognized gain or loss.

105.Nigel purchased a blending machine for $125,000 for use in
his business. As to the machine, he has deducted MACRS cost recovery of
$31,024, maintenance costs of $5,200, and repair costs of $4,000. Calculate
Nigel’s adjusted basis for the machine.

16

106.Amanda uses a delivery van in
her business. The adjusted basis is $21,000, and the fair market value is
$18,000. The delivery van is stolen and Amanda receives insurance proceeds of
$18,000. Determine Amanda’s realized and recognized gain or loss.

107.Renee purchases taxable bonds with a face value of
$200,000 for $212,000. The annual interest paid on the bonds is $10,000. Assume
Renee elects to amortize the bond premium. The total premium amortization for
the first year is $1,600.

a.
What is Renee’s interest income for the first
year?
b.
What is Renee’s interest deduction for the first
year?
c.
What is Renee’s adjusted basis for the bonds at
the end of the first year?

108.Walter acquired tax-exempt bonds for $330,000 in December
2010. The bonds, which mature in December 2015, have a maturity value of
$300,000. Walter does not make any elections regarding the amortization of the
bond premium. Determine the tax consequences to Walter when he redeems the
bonds in December 2015.

17

109.Misty owns stock in Violet,
Inc., for which her adjusted basis is $75,000. She receives a cash distribution
of $52,000 from Violet.

a.
What is Misty’s adjusted basis for the stock if
the distribution is a taxable dividend?
b.
What is Misty’s adjusted basis for the stock if
the distribution is a return of capital?

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