ACCT 324 Federal Tax Accounting I

Week 6 Discussion Questions

What property exchanges are taxable? Why do you think they are taxable? 

Week 6 Discussion Question 2

What property exchanges are nontaxable? Why do you think they are nontaxable? 

Week 6 Quiz

1.         Question :        (TCO 6) Alice owns land with an adjusted basis of $305,000, subject to a mortgage of $175,000. Real estate taxes are $4,500 per calendar year and are payable on December 31. On April 1, 2010, Alice sells her land subject to the mortgage for $325,000 in cash, a note for $300,000, and property with a fair market value of $60,000. What is the amount realized?

 2.        Question :        (TCO 6) Katie sells her personal use automobile for $15,000. She purchased the car three years ago for $31,000. What is Katie’s recognized gain or loss?

 3.        Question :        (TCO 6) The holding period of property acquired by gift may begin on:

 4.        Question :        (TCO 6) Tobin inherited 100 acres of land on the death of his father in 2010. A federal estate tax return was filed, and the land was valued at $150,000 (its fair market value at the date of the death). The father had originally acquired the land in 1963 for $12,000 and, prior to his death, had made permanent improvements of $3,000. What is Tobin’s basis in the land?

 5.        Question :        (TCO 6) The basis of personal use property converted to business use is:

 6.        Question :        (TCO 6) If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, then realized gain is:

 7.        Question :        (TCO 11) A taxpayer receives stock as a gift from his uncle. The adjusted basis of the stock is $10,000 and the fair market value is $17,000. The taxpayer trades the stock for bonds with a fair market value of $15,000 and $2,000 cash. What is the taxpayer’s recognized gain and the basis for the bonds?

 8.        Question :        (TCO 11) A taxpayer exchanges a warehouse for a building she 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, the taxpayer receives cash of $150,000. What is the recognized gain or loss and the basis of the office building?

 9.        Question :        (TCO 11) An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2010. On January 11, 2011, the insurance company paid the owner $450,000. The fair market value of the building was $500,000, but under the coinsurance clause, the insurance company is responsible for only 90 percent of the loss. The owner reinvested $410,000 in a new office building 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?

 10.      Question :        (TCO 11) Virginia, who is single, sells her principal residence (adjusted basis of $150,000) on January 5, 2010 for $380,000. She has owned and occupied it as her principal residence for 20 years. She incurs a realtor’s commission of $22,000 and legal fees of $5,000. On January 3, 2010, Virginia purchases a townhouse for $300,000 and uses it as her principal residence. Because it was not near a convenience store, she sells the townhouse on December 20, 2010 for $330,000. She incurs a realtor’s commission of $18,000 and legal fees of $4,000. She buys a house on December 1, 2010 for $250,000 and uses it as her principal residence. What is Virginia’s recognized gain on the sale of each house and her adjusted basis for the house purchased on December 1, 2010?