REG 24 - Property Transactions 1 - Sale and disposition/Cap Gains/Losses Flashcards
In June 2014, Hall’s mother gifted her 100 shares of a listed stock. The donor’s basis for this stock, which she bought in 1985, was $4,000, and market value on the date of the gift was $3,000. Hall sold his stock in July 2014 for $3,500. The donor paid no gift tax.
What was Hall’s reportable gain or loss in 2014 on the sale of the 100 shares of stock gifted to her?
$0. A donee basis in property acquired by gift usually equals the donor’s basis in the property plus the gift tax paid. However, if the fair market value of the gifted property at the time of the gift is less than the donor’s basis in the property, the donee assumes the fair market value of the property at the time of the gift as its basis for computing losses. The donee still uses the donor’s basis in the property plus the gift tax paid in computing gains.
When Hall received the stock as a gift from her mother, the fair market value of the stock ($3,000) was less than her mother’s basis in the property ($4,000). Thus, Hall assumed the stock’s fair market value at the time of the gift of $3,000 as her basis in the stock for computing losses and her mother’s basis of $4,000 as her basis in the stock for computing gains. Hall sold the stock for $3,500. Using Hall’s basis in the stock for computing losses of $3,000 indicates that she realized a gain of $500. However, using Hall’s basis in the stock for computing gains of $4,000 indicates that she realized a loss of $500. Therefore, Hall would not recognize any gain or loss from the sale of the gifted stock.
The sale of which of the following types of business property should be reported as Section 1231 (Property Used in the Trade or Business and Involuntary Conversions) property? A. Inventory held for resale. B. Machinery held for six months. C. Cattle held for 6 months. D. Land held for 18 months.
D. The land is business property owned for more than a year, so gain on its sale would generate Section 1231 gain.
Upon her grandfather's death, Jordan inherited 10 shares of Universal Corp. stock that had a fair market value of $5,000. Her grandfather acquired the shares in 1995 for $2,500. Four months after her grandfather's death, Jordan sold all her shares of Universal for $7,500. What was Jordan's recognized gain in the year of sale? A. $2,500 long-term capital gain. B. $2,500 short-term capital gain. C. $5,000 long-term capital gain. D. $5,000 short-term capital gain.
A. Property bequeathed due to the death of the owner has a fair market value basis to the beneficiary, and a long-term holding period. Jordan’s gain on the sale of the inherited stock is:
Amount Realized $7,500
Adjusted Basis (5,000)
Recognized Gain $2,500
Even though Jordan has owned the stock for only four months her holding period is long-term since the stock was inherited.
Bluff purchases equipment for business use for $35,000 and makes $1,000 of improvements to the equipment. After deducting depreciation of $5,000, Bluff gives the equipment to Russett for business use. At the time the gift is made, the equipment has a fair market value of $32,000. Ignoring gift-tax consequences, what is Russett's basis in the equipment? A. $31,000 B. $32,000 C. $35,000 D. $36,000
A. Bluff’s adjusted basis in the equipment before the gift is $31,000 (cost basis of $35,000 + $1,000 capital improvement - $5,000 cost recovery). When property is gifted, the donee has two bases in the gifted property: the gain basis is the donor’s adjusted basis of $31,000 and the loss basis (also $31,000) is the lower of the adjusted basis ($31,000) and fair market value ($32,000). Therefore, Russett’s gain and loss bases are both $31,000.
Carter purchased 100 shares of stock for $50 per share. Ten years later, Carter died on February 1 and bequeathed the 100 shares of stock to a relative, Boone, when the stock had a market price of $100 per share. One year later, on April 1, the stock split 2 for 1.
Boone gave 100 shares of the stock to another of Carter’s relatives, Dixon, on June 1 that same year, when the market value of the stock was $150 per share.
What was Dixon's basis in the 100 shares of stock when acquired on June 1? A. $5,000 B. $5,100 C. $10,000 D. $15,000
A. When the shares are bequeathed to Boone, his basis in the shares is the fair market value at the date of death, which is $100 per share. When the stock splits 2 for 1, Boone then owns 200 shares of stock with a basis of $50 each. When the shares are gifted to Dixon, she takes the basis in the stock that Boone had, or $50. Therefore, Boone’s total basis is $5,000 (100 shares x $50 per share).
Lee inherits a partnership interest from Dale. The adjusted basis of Dale’s partnership interest is $50,000, and its fair market value on the date of Dale’s death (the estate valuation date) is $70,000.
What was Lee's original basis for the partnership interest? A. $70,000 B. $50,000 C. $20,000 D. $0
A. For property received from a decedent through inheritance, a taxpayer generally assumes a basis equal to the fair market value of the property at the date of the decedent’s death.
Therefore, Lee’s original basis in the partnership was $70,000 - the fair market value of Dale’s partnership interest at the date of his death.
T/F: A suit of clothes purchased by a taxpayer for evening wear qualifies as a capital asset.
True
T/F: A father gave stock worth $100,000 to his child. The father had a $20,000 basis in the stock. The child will have a basis of $100,000 in the stock.
False.
The Gain basis is the adjusted basis of the donor. The Loss basis is the lower of either the FMV or the adjusted basis of the donor.
In this case, both the G/L basis would be $20,000 to the child.
Summer, a single individual, had a net operating loss of $20,000 three years ago. A Code Sec. 1244 stock loss made up three-fourths of that loss. Summer had no taxable income from that year until the current year. In the current year, Summer has gross income of $80,000 and sustains another loss of $50,000 on Code Sec. 1244 stock. Assuming that Summer can carry the entire $20,000 net operating loss to the current year, what is the amount and character of the Code Sec. 1244 loss that Summer can deduct for the current year? A. $35,000 ordinary loss. B. $35,000 capital loss. C. $50,000 ordinary loss. D. $50,000 capital loss.
C. Even though the NOL includes $15,000 ($20,000 × 3/4) of Section 1244 loss that can be combined with the current Section 1244 loss of $50,000, the maximum deduction for a given tax year is $50,000 for a Section 1244 loss ($100,000 if married filing jointly).
Jackson, a single individual, inherits Bean Corp. common stock from his parents. Bean is a qualified small business corporation under Code Section 1244.
The stock costs Jackson’s parents $20,000 and has a fair market value of $25,000 at the parents’ date of death. During the year, Bean declares bankruptcy and Jackson is informed that the stock is worthless.
What amount may Jackson deduct as an ordinary loss in the current year? A. $0 B. $3,000 C. $20,000 D. $25,000
A. To quality for ordinary treatment, 1244 stock must be issued to the taxpayer for money or other property transferred by the taxpayer to the corporation.
A taxpayer lived in an apartment building and had a two-year lease that began 16 months ago. The taxpayer's landlord wanted to sell the building and offered the taxpayer $10,000 to vacate the apartment immediately. The taxpayer's lease on the apartment was a capital asset but had no tax basis. If the taxpayer accepted the landlord's offer, the gain or loss would be which of the following? A. An ordinary gain. B. A short-term capital loss. C. A long-term capital gain. D. A short-term capital gain.
C. Since the lease is a capital asset the gain is capital in nature. The gain is long-term since the lease is more than one year.
Lee qualifies as head of a household for 2014 tax purposes. Lee’s 2014 taxable income is $100,000, exclusive of capital gains and losses. Lee has a net long-term loss of $8,000 in 2014.
What amount of this capital loss can Lee offset against 2014 ordinary income? A. $0 B. $3,000 C. $4,000 D. $8,000
B. Non-corporate taxpayers may deduct capital losses to the extent of capital gains. However, if the taxpayer’s capital losses exceed his/her capital gains, the deduction of the loss is limited to the lower of $3,000 or the amount by which capital losses exceed capital gains. Lee has no capital gains with which to offset the capital loss and, as a result, capital losses exceed capital gains. Therefore, the deduction of the loss is limited to the lower of $3,000 and the amount by which capital losses exceed capital gains.
Lee’s capital losses exceed capital gains by $8,000, the amount of Lee’s capital loss. Hence, Lee may offset ordinary income by a capital loss of $3,000.
For a cash-basis taxpayer, gain or loss on a year-end sale of listed stock arises on the
A. Trade date.
B. Settlement date.
C. Date of receipt of cash proceeds.
D. Date of delivery of stock certificate.
A. The holding period for stocks and securities acquired by purchase begins on the trade date that the stock or security was acquired and ends on the trade date on which the stock or security was sold or exchanged.
Therefore, the gain or loss on a year-end sale of listed stock arises on the trade date.
T/F: A capital loss can only offset $3,000 of capital gains for an individual.
False.
If the combination of net ST and net LT gains and losses is negative, then individuals can deduct this net capital loss up to $3,000 a year.
T/F: A net capital loss can be deducted by an individual up to $3,000 per year.
True
