basis

Question 1

In Year 1, Corey bought 200 shares of ABC stock at $10 a share. In Year 2, Corey bought an additional 100 shares of ABC stock at $20 a share. InYear 3, ABC declared a 2-for-1 stock split. How many shares of ABC stock does Corey own, and what is the basis of the stock?

A.
400 shares at $10 a share and 200 shares at $20 a share.

B.
200 shares at $20 a share and 100 shares at $40 a share.

C.
400 shares at $5 a share and 200 shares at $10 a share.

Answer 1

Answer C is correct.
A distribution of common stock as a stock split is generally a tax-free distribution. The basis of the original stock is allocated between it and the new stock based on their relative fair market values. Here, all the stock has the same fair market value, so the basis per share should be calculated as total basis divided by total number of shares. The 200 shares purchased in Year 1 have a basis of $2,000 (200 shares × $10per share), which must be allocated to the additional 200shares from the stock split. The basis for the Year 1 stocks will be $5per share ($2,000 ÷ 400). The 100 shares purchased in Year 2 have a basis of $2,000 (100 shares × $20), which must be allocated to the additional 100 shares from the stock split. The basis for the Year 2 stocks will be $10 per share ($2,000 ÷ 200). 

D. 
600 shares at $6.67 a share.

Question 2

During the year, Billy’s father deeded him 400 acres of land. The fair market value (FMV) after the exclusion on the date of the transfer was $350,000. His father had paid $40,000 for the land. No gift tax was paid on the transfer. When Billy’s father died six months later, the fair market value of the land was $400,000. What is Billy’s basis in the 400 acres?
 

A. 
$400,000

B. 
$350,000

C. 
$310,000

D.
$40,000

Answer 2

$40,000

Answer D is correct.
The donee’s basis in property acquired by gift is the donor’s basis, increased for any gift tax paid attributable to appreciation. The donor’s basis is increased by

Gift tax paid=fm(time of the gift-Donors basis/fmv (time of the gift-annual exclusion

The donor’s basis in the property is $40,000 and no gift tax was paid on the transfer.

Question 3

Ten years ago, Edwin Ryan bought 100 shares of a listed stock for $5,000. In June of the current year, when the stock’s fair market value was $7,000, Edwin gave it to his sister, Lynn. No gift tax was paid. Lynn died in October of the same year, bequeathing the stock to Edwin, when the stock’s fair market value was $9,000. Lynn’s executor did not elect the alternate valuation date. What is Edwin’s basis for this stock after he inherits it from Lynn’s estate?
 

A. 
$7,000

B. 
$9,000

C. 
$0

D.
$5,000

Answer 3

$5,000

Answer D is correct.
Sec. 1014(a), appreciated property is acquired by the decedent by gift within 1 year of death and passes back to the donor(Edwin) by reason of the decedent’s death, the beneficiary’s basis Cost 50000 in the property is its adjusted basis immediately prior to the decedent’s death [Sec. 1014(e)]. Since Lynn received the stock as a gift from Edwin within 1 year of her death, Edwin assumes Lynn’s basis ($5,000), which was Edwin’s basis when he made the gift.

Question 4

On July 15, 2015, Carl received 50 shares of stock as an inheritance from his father, who died April15, 2015. His father’s adjusted basis in the stock was $50,000. The stock’s fair market value on April15, 2015, was $65,000. On July15, 2015, its value was $70,000, and on October15, 2015, it was $80,000. The alternate valuation date was not elected on the federal estate tax return. Carl’s basis in the inherited stock is
 

A. 
$50,000

B. 
$80,000

C. 
$65,000

D.
$70,000

Answer 4

$65,000

Answer C is correct.
The basis of property received from a decedent is generally the fair market value of the property on the date of the decedent’s death [Sec. 1014(a)]. If the alternate valuation date for the estate tax return is elected by the executor, the basis of the assets is their fair market value 6 months after death. Carl’s basis in the stock is the $65,000 fair market value on April 15 (the date of his father’s death).

Question 5

The basis of property acquired by purchase includes all of the following except
 

A. 
Sales tax charged on the purchase.

B. 
Unstated interest on any time-payment plan.

C.
Amount paid in notes to the seller.

D.
Freight, installation, and testing charges.

Answer 5

.
Unstated interest on any time-payment plan.

Answer B is correct.
The basis of purchased property does not include unstated interest on time-payment plans. Interest is deductible as an expense.

Question 6

Mr. Back received land as a gift from his uncle. At the time of the gift, the land had a fair market value of $7,000 and an adjusted basis of $9,500 to Mr. Back’s uncle. One year later, Mr. Back sold the land for $8,000. What was his gain or loss on this transaction?
 

A. 
$2,000 gain.

B. 
$1,000 gain.

C.
No gain or loss.

D.
$1,500 loss

Answer 6

C.
No gain or loss.

Answer C is correct.
For determining gain on the sale of property acquired by gift, the basis is the donor’s adjusted basis. Mr. Back’s sale results in no gain ($8,000 sales price – $9,500 basis = no gain).
For determining loss on the sale of property acquired by gift, the basis may not exceed the fair market value of the property at the date of the gift. Hence, there is no loss ($8,000 sales price – $7,000 basis = no loss).

Question 7

Harry purchased one share of common stock in a computer company for $90. Shortly after he purchased it, the corporation distributed two new shares of common stock for each share held. What is his basis for each of the three shares of common stock?

A. 
$0

B. 
$180

C.
$90

D.
$30

Answer 7

D.
$30

Answer D is correct.
A proportionate distribution of stock issued by the corporation is generally not gross income to the shareholders. A shareholder allocates the aggregate adjusted basis (AB) in the old stock to the old and new stock in proportion to the FMV of the old and new stock. Basis is apportioned by relative FMV to different classes of stock if applicable. Since the distribution occurred shortly after Harry’s purchase of the stock, it can be assumed that the FMV of his one stock is equal to the FMV of the distribution. Since he owns three shares after the distribution, his original basis must be divided by three shares to arrive at his basis per share of common stock. Thus, his basis in each of his three shares is equal to $30 ($90 ÷ 3 shares).

Question 8

During the current year, Joey received a gift of property from his uncle. At the time of the gift, the property had a fair market value of $120,000 and an adjusted basis to his uncle of $80,000. Joey’s uncle paid a gift tax on the property of $21,200. What is the amount of Joey’s basis in the property?
 

A. 
$80,000

B. 
$88,000

C.
$101,200

D.
$128,000

Answer 8

Answer B is correct.
The basis of property acquired by gift is generally the donor’s adjusted basis [Sec. 1015(a)], increased by a gift tax paid applicable to appreciation [Sec. 1015(d)]. The gift tax applicable to appreciation is the appreciation divided by the taxable gift times the gift tax.

Donor’s adjusted basis
$80,000
Gift tax*
8,000

Donee’s basis
$88,000

(120,000-80,000/120,000-14000)x21200=8800

Question 9

Jane purchased 300 shares of stock 5 years ago for $20 a share. The directors voted a 3 for 1 stock split. After the split, Jane had 900 shares. What is Jane’s basis per share after the split?
 

A. 
$5.00

B. 
$20.00

C. 
$60.00

D.
$6.67

Answer 9

D.
$6.67

Answer D is correct.
The basis of the original stock is allocated between it and the new stock based on their relative fair market values. Here, all the stock has the same fair market value, so the basis per share should be calculated as total basis divided by total number of shares.

Total basis (300 shares × $20)
$6,000
÷ Total number of shares
900

New basis per share
$6.67

Question 10

Derrick received several acres of land from his father as a gift. At the time of the gift, the land had a fair market value of $85,000. The father’s adjusted basis in the land was $105,000. Two years later, Derrick sold the land for $90,000. No events occurred that increased or decreased Derrick’s basis in the land. What was Derrick’s gain or loss on the sale of the land?
 

A. 
$(15,000)

B. 
$5,000

C. 
$0

D.
$20,000

Answer 10

$0

Answer C is correct.
For determining gain on the sale of property acquired by gift, the basis is the donor’s adjusted basis. Derrick’s sale results in no gain ($90,000 sales price – $105,000 basis). For determining loss on the sale of property acquired by gift, the basis may not exceed the fair market value of the property at the date of the gift. Hence, there is no loss ($90,000 sales price – $85,000 basis).

Question 11

On January 3, Year 1, Wilson purchased 300 shares of common stock in Corporation Why for $120 per share. Four months later he purchased 100 additional shares at $180 per share. On December 10, Year 1, Wilson received a 10% nontaxable stock dividend. The new and the old stock are identical. What is the amount of Wilson’s basis in each share of stock of Corporation Why stock after the stock dividend?

A. 
330 shares at $109 a share and 110 shares at $164 a share.

B. 
440 shares at $123 a share.

C. 
330 shares at $120 a share and 110 shares at $164 a share.

D.
330 shares at $120 a share and 110 shares at $180 a share.

Answer 11

A.
330 shares at $109 a share and 110 shares at $164 a share.

Step 1
10% x shares 1 time
10% x hares 2 time

1 time
300shares x.10=30
30+300=330 shares

2n time
100x.10=10
100+10=110

Step 2
Multiply 1st time original share x prices
300x120=36000

Divide the 3600/total new shares 330
36000/330=109
answer 330 shares at 109 a share

Step 3 -do the same for the second time
100x180=18000 oringal shares xprice

Divide 18000/over new shares
18000/110=164

Aanswer
2nd part
110 shares at 164 share

Answer A is correct.
them. Wilson owns 330 (300 + 30) shares with a basis of $36,000, or $109 per share and 110 (100 + 10) shares with a basis of $18,000, or $164 per share.

Question 12

In Year 1, Mr. Smith purchased 50 shares of common stock in Corporation D for $2,000. In Year 5, Corporation D declared a stock dividend of three shares of its common stock for each 10 shares held. In Year 6, D’s common stock split 2 for 1 at a time when the fair market value was $30 a share. What is Mr. Smith’s basis in each of his shares of D’s stock (rounded to the nearest dollar) if both distributions were tax-free and all the stock received was identical to the stock purchased?
 

A. 
$15 per share.

B. 
$30 for 100 shares and $0 for all additional shares.

C.
$31 for 65 shares and $30 for 65 shares.

D.
$30 per share.

Answer 12

15 per share.

Answer A is correct.
3 shares of common stock for each 10 for a total of 50 shares orignaly

50/10 x 3
5x3=15
15+50 total shares=65

Split 2/1
65x2=130

$2000 total price/130 shares
$15 per share

A . Mr. Smith’s total number of shares is 130 [(50 + 15) × 2]. His basis per share (rounded to the nearest dollar) is $15 ($2,000 ÷ 130 shares = $15.385).

Question 13

Mr. Hill inherited 1,000 shares of Pro Corporation stock from his father, who died on March8, 2015. His father paid $10 per share for the stock on September1, 1993. The fair market value of the stock on the date of death was $50 per share. On September8, 2015, the fair market value of the stock was $60 per share. Mr. Hill sold the stock for $75 a share on December5, 2015. The estate qualified for, and the executor elected, the alternate valuation date. A federal estate tax return was filed. What was Mr.Hill’s basis in the stock on the date of the sale?
 

A. 
$75,000

B. 
$50,000

C. 
$150,000

D.
$60,000

Answer 13

$60,000

Answer D is correct.
The basis of property received from a decedent is generally the fair market value of the property on the date of the decedent’s death [Sec. 1014(a)]. If the executor elects the alternate valuation date for the estate tax return, the basis of the assets is their fair market value 6 months after death or the date of sale or distribution, if earlier. Mr. Hill’s basis in the stock is the $60,000 fair market value 6 months after his father’s death (1,000 shares × $60 per share).

Question 14

Linda received land as a gift from her grandmother. At the time of the gift, the land had a fair market value of $60,000 and an adjusted basis of $70,000 to Linda’s grandmother. One year later, Linda sold the land for $85,000. What is the amount of Linda’s gain on this transaction?

A.
$15,000

B. 
$25,000

C. 
$10,000

D.
$85,000

Answer 14

A.
$15,000

Answer A is correct.
The basis of property acquired by gift is generally the donor’s adjusted basis, plus any gift tax attributable to appreciation (Sec. 1015). This rule applies when the donee determines any gain on a sale of the property. Since no gift tax was paid attributable to appreciation, Linda’s basis is the same as her grandmother’s, or $70,000. Therefore, she must recognize a $15,000 gain ($85,000 sales price – $70,000 basis).

Question 15

In 2013, Fred purchased 100 shares of Oak Company common stock for $100 per share. In June of 2015, Oak Company declared a 2-for-1 common stock split. Fred sells 50% of his Oak Company common stock shares for $200 per share immediately after he receives his stock split shares. He sells his remaining Oak Company shares at the end of 2015 for $100 per share. What is Fred’s total 2015 gain from the sale of his Oak Company shares?
 

A. 
$25,000

B. 
$20,000

C.
$30,000

D.
$15,000

Answer 15

B.
$20,000

Answer B is correct.

2/1x100=200 shares

sells 50 % is 100 shares=200x.50
100 shares sold @ $200=20,000

Left 100
Sells 100x100=10,000
Total sold 20,000+10,000=30,000

cost beginning shares
100x1000=10,000
so

30,000-10,000=20,000 B

. After the 2-for-1 split, his basis is $50 per share, and he now owns 200 shares of stock. Fred realized a gain of $15,000 [100shares × ($200 – $50)] on the sale immediately after the split. He also realized a gain of $5,000 [100 shares × ($100 – $50)] at the end of the year.

Question 16

Ms. Pear owned 1,000 shares of XYZ Corporation which she had purchased in Year 1 at a cost of $12 per share. In Year 3, she received a nontaxable 20% stock dividend. The shares were identical to those she already held. She ended the year owning 1,200 shares. In Year 5, the stock split 2 for 1, which increased her holdings to 2,400 shares at the end of the year. In Year 8, she sold 400 shares. What was her basis in the 400 shares of stock sold?
 

A. 
$2,400

B. 
$4,800

C.
$4,000

D.
$2,000

Answer 16

D.
$2,000

Answer D is correct.
A (a), the basis of the original stock is allocated between it and the distributed stock based on their relative fair market values.

find base
1000 shares x $12=$12000 base

find add shares
1000x.20=200
add shares
1000+200=1200 shares
multiply split
2/1x1200=2400 shares

find unitary price to calculate the 400
base/total shares

12000/2400=$5 per unitary price

multiply 5x400 shares sold=2000

or alt method

shares           = basee
2400/400=   12000/x

Here, all the stock has the same fair market value, so the basis per share is calculated as total basis divided by total number of shares. Ms. Pear’s total number of shares is 2,400. Her basis per share is $5 ($12,000 ÷ 2,400 shares = $5). Therefore, her basis in stock sold is $2,000 ($400 shares × $5 per share).

Question 17

Ms. Willow operated a small manufacturing plant. During the year, she took delivery on a new plastic mold stamping machine. Her cost included the following:

Cost of machine
$88,000
Sales tax
4,000
Freight charges to deliver property to her
1,500
Excise taxes
2,000
What is Ms. Willow’s basis in the machine?
 

A. 
$93,500

B. 
$89,500

C. 
$88,000

D.
$95,500

Answer 17

D.
$95,500

Answer D is correct.
Under Sec. 1012, the basis of property is the cost of the property. Sales and excise taxes paid in connection with the acquisition of property are treated as a cost of the property [Sec. 164(a)]. Delivery, installation, and freight charges are also included as part of the cost of the property. Basis is computed as follows:

Purchase price
$88,000
Sales tax
4,000
Freight charges
1,500
Excise taxes
2,000

Basis in equipment
$95,500

Question 18

In 2010, Mr. Chang purchased 50 shares of common stock in Corporation D for $1,000. In 2012, Corporation D declared a stock dividend of 2 shares of its common stock for each 10 shares held. In 2015, D’s common stock split 2-for-1 at a time when the fair market value was $20 a share. What is Mr.Chang’s basis in each of his shares of D’s stock (rounded to the nearest dollar) if both distributions were tax-free and all the stock received was identical to the stock purchased?
 

A. 
$20 per share.

B. 
$17 for 60 shares and $20 for 60 shares.

C. 
$20 for 100 shares and $0 for all additional shares.

D.
$8 per share.

Answer 18

D.
$8 per share.

Answer D is correct.
A distribution of common stock as a stock dividend on common stock is generally a tax-free distribution. The same is true for a stock split. Under Sec. 307(a), the basis of the original stock is allocated between it and the distributed stock based on their relative fair market values. Here, all the stock has the same fair market value, so the basis per share is calculated as total basis divided by total number of shares. Mr.Chang’s total number of shares is 120 [(50 + 10) × 2]. His basis per share (rounded to the nearest dollar) is $8 ($1,000 ÷ 120 shares).

Question 19

Individuals who pay AMT, alternative minimum tax, may take a credit against regular income tax in future years for only the portion of the AMT that is attributable to deferral items, such as depreciation.

T or F

Why

Answer 19

True.

Your answer is correct.
A credit is allowed for alternative minimum tax (AMT) paid in a tax year against regular tax liability in one or more subsequent tax years. For individuals, the Minimum Tax Credit (MTC) amount is the AMT that would have been computed if the only adjustments made to taxable income in computing alternative minimum taxable income were those for (tax-favored) items that result in deferral, as opposed to exclusion, of income. To compute the MTC amount, recompute the most recent year’s AMT without adjustment for exclusion items and add carryover MTC. (Publication 17.)

Question 20

A taxpayer died and left his daughter a commercial property. He purchased the property for $150,000 and taken a $45,000 depreciation. The fair market value of his death was $200,000. Six months after death, the property was re-titled into the daughter name by the estate rep. There was no alternate valuation done on the date of the transfer. The FMV was $210,000
what is the basis of the property?

A 210,000
B 200,000
C 150,000
D $125,000

Why

Answer 20

B 200,000

Basis of the prop is either

1 FMV at the date of decedants death or
2 FMV at the alternate valuation date, if the estate elects alt valuation

No alternate valuation was made so fmv decedants death

$200,000

Question 21

On June 1, 2011 a taxpayer gave his father a property which had adjusted basis of $150,000 and fmv 200,000. On Jan 2012, the father died and left the property to the taxpayer. The property had fmv of $225,000 on January 20,2012.

what is the tax basis in property

A 0
B 150,000
C 200,000
D 225,000
Why

Answer 21

B 150,000
if the taxapayer gave prop to the decedant within 1 year before the decedants death, the tax ipayer basis is the same as decedants adj basis of 150,000 before death.

NOT fmv of prop.

Question 22

In 2010, Mr. Chang purchased 50 shares of common stock in Corporation D for $1,000. In 2012, Corporation D declared a stock dividend of 2 shares of its common stock for each 10 shares held. In 2015, D’s common stock split 2-for-1 at a time when the fair market value was $20 a share. What is Mr. Chang’s basis in each of his shares of D’s stock (rounded to the nearest dollar) if both distributions were tax-free and all the stock received was identical to the stock purchased?

A.
$20 per share.

B.
$17 for 60 shares and $20 for 60 shares.

C.
$20 for 100 shares and $0 for all additional shares.

D.
$8 per share.

Answer 22

Step 1 
50/10x2=100 shares
add back
50+10=60.00
times split
2/1x60=120

Total amount purchased shares $1000

$1000/120=8