CHAPTER 14–PROPERTY TRANSACTIONS

| November 9, 2018

43.
Albert purchased a tract of land for $140,000 in
2006 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 2010 and the value of the land fell to
$100,000. What is the amount of loss Albert can claim in 2010?

A.
$40,000.

B.
$60,000.
C.
$80,000.
D.
$100,000.
E.
None of the above.

44.
Kate sells property for $120,000. The buyer pays
$2,000 in property taxes that had accrued during the year while the property
was still legally owned by Kate. In addition, Kate pays $6,000 in commissions
and $2,000 in legal fees in connection with the sale. How much does Kate
realize from the sale of her property?

A.
$112,000.

B.
$114,000.
C.
$116,000.
D.
$120,000.
E.
None of the above.

5

52.
Alice owns land with an adjusted basis of
$610,000, subject to a mortgage of $350,000. Real estate taxes are $9,000 per
calendar year and are payable on December 31. On April 1, 2010, Alice sells her
land subject to the mortgage for $650,000 in cash, a note for $600,000, and
property with a fair market value of $120,000. What is the amount realized?

A.
$1,370,000.

B.
$1,372,219.
C.
$1,720,000.
D.
$1,722,219.
E.
None of the above.

53.
Pedro borrowed $45,000 to purchase a machine. He
later borrowed $15,000 using the machine as collateral. Both notes are
nonrecourse. Eight years later, the machine has an adjusted basis of zero and
two outstanding note balances of $30,000 and $6,000. Pedro sells the machine
subject to the two liabilities for $21,000. What is his realized gain or loss?

A.
$0.

B.
$21,000.
C.
$51,000.
D.
$57,000.
E.
None of the above.

54.
The bank forecloses on Lisa’s apartment complex.
The property had been pledged as security on a nonrecourse mortgage, whose
principal amount at the date of foreclosure is $750,000. The adjusted basis of
the property is $480,000, and the fair market value is $750,000. What is Lisa’s
recognized gain or loss?

A.
$270,000.

B.
($750,000).
C.
$0.
D.
($480,000).
E.
None of the above.

55.
Carlton purchases land for $300,000. He incurs
legal fees of $5,000 associated with the purchase. He subsequently incurs
additional legal fees of $20,000 in having the land rezoned from agricultural
to residential. He subdivides the land and installs streets and sewers at a
cost of $600,000. What is Carlton’s basis for the land and the improvements?

A.
$300,000.

B.
$900,000.
C.
$905,000.
D.
$925,000.
E.
None of the above.

56.
Jamie bought her house in 2001 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, 2010. 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,
2010. 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.

6

57.
Alicia buys a beach house for $325,000 which she
uses as her personal vacation home. She builds an additional room on the house
for $45,000. She sells the property for $450,000 and pays $22,000 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.
$54,000.
C.
$80,000.
D.
$99,000.
E.
None of the above.

58.
Which
of the following decreases adjusted basis?

A.
Amortization
of bond premium.
B.
A corporate distribution to a shareholder treated
as a return of capital in which gain is recognized to the shareholder.

C.
Depreciation.
D.
Only a. and b.
E.
a., b., and c.

59.
Capital
recoveries include:

A.
The
cost of capital improvements.
B.
Ordinary repair and maintenance expenditures.
C.
Payments made on the principal of a mortgage on
taxpayer’s building.
D.
Amortization of bond premium.
E.
All of the above.

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