ACTG 451 Chapter Notes - Chapter 0: Adjusted Basis

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3 May 2021

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150 realized loss on the scooter and a $ . Rebecca only will recognize the gain or loss associated with the painting . When property is sold or otherwise disposed of, gain or loss may result. Such gain or loss has an effect on the income tax position of the party making the sale or other disposition when the realized gain or loss is recognized for tax purposes. The concept of realized gain or loss is expressed as follows: amount realized from the sale adjusted basis of the property = realized gain or loss. The amount realized is the selling price of the property less any costs of disposition (e. g. , brokerage commissions) incurred by the seller. All realized gains are recognized (taxable) unless some specific part of the tax law provides otherwise. Realized losses may or may not be recognized (deductible) for tax purposes, depending on the circumstances involved.

Related Questions

Multiple Choice:

_____For purposes of calculating depreciation on the taxpayersbusiness usage of his home, the depreciable basis of the officeis:

The allocable share (example - square footage) of the adjustedbasis of the home when he converted the room from personal space toan office for business use.

The allocable share of the fair market value of the home at thetime he converted the room to an office space for business.

The lesser of a. or b.

The greater of a. or b.

____ Which of the following is not included inthe taxpayerâs basis of business property?

Sales taxes paid with the purchase

Title insurance paid with the purchase

Amounts paid to have the property installed

Amounts paid to have the property delivered

All of the above are included in the taxpayerâs basis.

____ A taxpayer has a net short term capital lossof $2,000 and a net long term capital loss of $3,000 for the taxyear. If there are no other gains or losses, what, if anything,carries over to the next year?

$2,000 short term capital loss

$2,000 long term capital loss

$2,000 short term capital loss; $3,000 long term capitalloss

$500 short term capital loss; $1,500 long term capital loss

The taxpayer has no capital loss carryover.

_____ A taxpayer purchased a capital asset on March 22, 2015.What is the earliest date that he can dispose of the asset wherethe sale qualifies for long term capital gains/loss treatment?

September 22, 2015

September 23, 2015

March 22, 2016

March 23, 2016

_____ A married couple sells the following capital assets duringthe year:

Date Acquired	Date Sold	Sales Price	Adjusted Basis

The coupleâs net capital gain is:

$4,000

$12,000

$5,000

$11,000

None of the above

_____ Land purchased for $80,000 in 2000 and used in thetaxpayers business is sold in 2015 for $87,000. The sale of theland results in:

$7,000 short term capital gain

$7,000 long term capital gain

$7,000 ordinary income

$7,000 section 1231 gain

None of the above

_____ Taxpayer purchased office equipment for $9,000. Theequipment had been depreciated $5,000. It was sold for $7,500. Whatis the amount and nature of the gain/loss from the sale?

$1,500 ordinary loss

$1,500 capital loss

$3,500 ordinary income

$3,500 long term capital gain.

_____ Taxpayer has a plant where she acquired a machine for$14,000. Over time depreciation of $6,000 was claimed. In thecurrent year taxpayer sells the asset for $19,000. What is theamount and nature of the gain/loss from the sale?

$6,000 of ordinary income, $5,000 long term capital gain

$5,000 of long term capital gain, $5,000 of ordinary income

$11,000 ordinary income.

$11,000 long term capital gain

______ Equipment used in the business is purchased in 2012 for$50,000. It was sold in 2015 for $22,000.

Depreciation information is as follows:

Accelerated depreciation claimed $23,758

Straight line Depreciation would have been$21,500

What is the gain or loss on the sale of the equipment, and howwill it be treated for tax purposes?

$4,242 Section 1231 loss

$1,758 Section 1231 loss

$2,258 ordinary loss; $1,984 Section 1231 loss

$4,242 ordinary loss

$6,500 ordinary loss

_____ In Malat v Riddell, 383 U.S. 569, 86 S.Ct. 1030,which of the following statements is accurate:

The Supreme Court sustained the governmentâs position, holdingthat the property was held by the taxpayer primarily for sale tocustomers in the ordinary course of his trade or business.

The Supreme Court held that the sale of âproperty held by thetaxpayer primarily for sale to customers in the ordinary course ofa trade or business is synonymous with the wordâsubstantiallyâ.

Words of the statutes should be interpreted where possible intheir ordinary, everyday senses. The Supreme Court concluded thatas used in Section 122191), âprimarilyâ means âof first importanceâor âprincipallyâ.

In so concluding as it did, the Supreme Court found itunnecessary to remand the case back to the lower court.

4. _____ In Commissioner v. Tufts, 461 U.S. 300, 103 S.Ct 1826,the Supreme Court concluded that when the amount of thenon-recourse note assumed by the buyer exceeds the propertyâs fairmarket value, the seller excludes the excess from the amountrealized on the sale. 5. _____ Prior to their marriage Jack soldDiane 50% interest in his rental property. Jack is not required torecognize gain/loss on the sale since the sale was in contemplationof marriage. 6. _____ Under a divorce decree the ex-spouse mustrelinquish ownership in an asset to the husband three years afterthe divorce is final. The husband will assume the basis of theproperty from the ex-spouse. 7. _____ A loss on the sale of apersonal residence is not deductible. 8. _____ When the buyerassumes the sellerâs liability on a mortgage, the seller includesthe amount of the mortgage in computing the amount realized fromthe sale. 9. ____ Trade Accounts Receivable are capital assets. 10._____ A corporation may carry forward capital losses to offsetagainst capital gains indefinitely 11. _____To qualify as Section1231 property, it must be used in the trade or business and must beheld for more than one year. 12. _____ Under IRC Section 165(g) ifany security which is a capital asset becomes worthless during thetaxable year, the loss shall be treated as a loss from the sale orexchange of a capital asset on the last day of the taxable year.13. _T____ Business property held for less than or equal to oneyear always produces ordinary income or loss. 14. _____ The basisof business property is reduced by the greater of the depreciationallowed or allowable. 15. ____ Janice buys property by paying$1,000 down and borrowing $9,000. Janiceâs initial basis in theproperty is $1,000.

John borrowed $4,500 to purchase a machine. He later borrowed$2,000 using the machine as collateral. Both notes are nonrecourse.Ten years later, the machine has an adjusted basis of zero and twooutstanding not balances of $2,500 and $800. John sells the machinesubject to the two liabilities for $1,000. What is his realizedgain or loss?â

	a.	âNone of the above.
	b.	â$4,300
	c.	â$0.
	d.	â$3,300.
	e.	â$1,000.

10 points

QUESTION 2

Angelica purchases a house for $165,000. She converts theproperty to rental property when the fair market value is $140,000.After deducting depreciation (cost recovery) expense of $3,130, shesells the house for $100,000. What is her recognized gain orloss?â

	a.	â($65,000).
	b.	â($36,870).
	c.	âNone of the above.
	d.	â$0.
	e.	â($62,870).

10 points

QUESTION 3

Olivia and Matthew exchange real estate in a like-kind exchange.Olivia's basis in the real estate, subject to a $100,000 mortgage,is $250,000 and the fair market value is $400,000. She receivesreal estate with a fair market value of $300,000 and Matthewassumes the mortgage. What is Olivia's recognized gain and adjustedbasis for the real estate received?â

	a.	âNone of the above.
	b.	â$50,000, $400,000.
	c.	â$100,000, $250,000.
	d.	â$100,000, $400,000.
	e.	â$0, $250,000.

10 points

QUESTION 4

On October 1, Denise exchanged an apartment building (adjustedbasis of $575,000 and subject to a mortgage of $325,000) foranother apartment building owned by Quinn (fair market value of$850,000 and subject to a mortgage of $325,000). The propertytransfers were made subject to the outstanding mortgages. Whatamount of gain should Denise recognize?â

	a.	â$0.
	b.	â$50,000.
	c.	âNone of the above.
	d.	â$225,000.
	e.	â$275,000.

10 points

QUESTION 5

Maple, Inc., owns a delivery truck which initially cost $40,000.After depreciation of $25,000 had been deducted, the truck wastraded-in on a new truck that cost $50,000. Maple was required topay the car dealer $20,000 in cash. What is Maple's basis for thenew truck assuming the exchange qualifies for Â§1031 treatment?â

	a.	â$0.
	b.	â$15,000.
	c.	â$35,000.
	d.	â$50,000.
	e.	âNone of the above.

10 points

QUESTION 6

Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000. Assume that Aaron soldthe property on June 20, 2016 for $90,000.

What amount should Aaron use for his basis?

	a.	â$90,000
	b.	â$40,000
	c.	âNone of the above
	d.	â$0
	e.	â$35,000

10 points

QUESTION 7

What amount of gain/(loss) should Aaron recognize on thesale?â

	a.	âNone of the above
	b.	â$55,000
	c.	â$50,000
	d.	â$40,000
	e.	â$90,000

10 points

QUESTION 8

Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000.

What amount of gain/(loss) should Aaron recognize assuming hesold the property for $36,500 on 6/20/16?

	a.	âNone of the above.
	b.	$1,500 âShort-term capital gain
	c.	â$0
	d.	â$3,500 Short-term capital loss
	e.	â$1,500 Long-term capital gain

10 points

QUESTION 9

Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam hadacquired the property in 1988 and had an adjusted basis in theproperty of $40,000.

What amount of gain/(loss) should Aaron recognize assuming hesold the property for $30,000 on 6/20/16?

	a.	â($5,000) Short-term Loss.
	b.	âNo Gain or Loss recognized.
	c.	âNone of the above
	d.	â($10,000) Short-term Loss.
	e.	â($10,000) Long-term Loss.

10 points

QUESTION 10

Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $90,000. Miriamacquired the property in 1966 and had an adjusted basis in theproperty of $40,000.

What amount of gain/(loss) should Aaron recognize assuming hesold the property for $100,000 on 6/20/16?

	a.	â$10,000 Long-term capital gain.
	b.	âNone of the above.
	c.	â$10,000 Short-term capital gain.
	d.	â$60,000 Long-term capital gain.
	e.	â$60,000 Short-term capital gain.

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ACTG 451 Chapter Notes - Chapter 0: Adjusted Basis

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