61. LO.1, 2, 4, 11 Ira Cook is planning to make a charitable contribution to the Boy
Scouts of Crystal, Inc. stock worth $20,000. The stock has an adjusted basis of $15,000. A friend has suggested that Ira sell the stock and contribute the $20,000 in proceeds rather than contribute the stock.
a. Should Ira follow the friend’s advice? Why or why not?
b. Assume that the fair market value is only $13,000. In this case, should Ira follow the friend’s advice? Why or why not?
c. Rather than make a charitable contribution to the Boy Scouts, Ira is going to make a gift to Nancy, his niece. Advise Ira regarding (a) and (b).
d. Write a letter to Ira regarding whether in (a) he should sell the stock and contribute the cash or contribute the stock. He has informed you that he purchased the stock six years ago. Ira’s address is 500 Ireland Avenue, DeKalb, IL 60115.62. LO.4 As sole heir, Dazie receives all of Mary’s property (adjusted basis of $1,400,000 and fair market value of $3,820,000). Six months after Mary’s death in 2013, the fair market value is $3,835,000.
a. Can the executor of Mary’s estate elect the alternate valuation date and amount? Explain.
b. What is Dazie’s basis for the property?
c. Assume instead that the fair market value six months after Mary’s death is $3.8 million.
Respond to (a) and (b).63. LO.4 Dan bought a hotel for $2,600,000 in January 2009. In May 2013, he died and left the hotel to Ed. While Dan owned the hotel, he deducted $289,000 of cost recovery.
The fair market value in May 2013 was $2,800,000. The fair market value six months later was $2,850,000.
a. What is the basis of the property to Ed?
b. What is the basis of the property to Ed if the fair market value six months later was $2,500,000 (not $2,850,000) and the objective of the executor was to minimize the estate tax liability?64. LO.4 Emily makes a gift of 1,000 shares of appreciated stock to her uncle, Randolph, on January 28, 2013. The basis of the stock is $30,000, and the fair market value is $80,000. Randolph dies on November 8, 2013. Under the provisions of Randolph’s will,
Emily inherits 1,000 shares of the stock. The value of the stock for Federal estate tax purposes is $95 per share.
a. What is the basis of the inherited stock to Emily?
b. What would have been the basis of the inherited stock to Emily if she had given the stock to Randolph on January 5, 2012?65. LO.4 Helene and Pauline are twin sisters who live in Louisiana and Mississippi, respectively.
Helene is married to Frank, and Pauline is married to Richard. Frank and Richard are killed in an auto accident in 2013 while returning from a sporting event.
Helene and Frank jointly owned some farmland in Louisiana (value of $940,000, cost of $450,000). Pauline and Richard jointly owned some farmland in Mississippi (value of $940,000, cost of $450,000). Assume that all of Frank’s and Richard’s property passes to their surviving wives.
a. Calculate Helene’s basis in the land.
b. Calculate Pauline’s basis in the land.
c. What causes the difference?66. LO.5 Sheila sells land to Elane, her sister, for the fair market value of $40,000. Six months later when the land is worth $45,000, Elane gives it to Jacob, her son. (No gift tax resulted.) Shortly thereafter, Jacob sells the land for $48,000.
a. Assuming that Sheila’s adjusted basis for the land is $24,000, what are Sheila’s and
Jacob’s recognized gain or loss on the sales?
b. Assuming that Sheila’s adjusted basis for the land is $60,000, what are Sheila’s and
Jacob’s recognized gain or loss on the sales?67. LO.1, 2, 4, 5 Louis owns three pieces of land with an adjusted basis as follows: parcel
A, $75,000; parcel B, $125,000; and parcel C, $175,000. Louis sells parcel A to his uncle for $50,000, parcel B to his partner for $120,000, and parcel C to his mother for $150,000.
a. What is the recognized gain or loss from the sale of each parcel?
b. If Louis’s uncle eventually sells his land for $90,000, what is his recognized gain or loss?
c. If Louis’s partner eventually sells his land for $130,000, what is his recognized gain or loss?
d. If Louis’s mother eventually sells her land for $165,000, what is her recognized gain or loss?68. LO.1, 2, 4, 5 Tyneka inherited 1,000 shares of Aqua, Inc. stock from Joe. Joe’s basis was $35,000, and the fair market value on July 1, 2013 (the date of death) was $45,000.
The shares were distributed to Tyneka on July 15, 2013. Tyneka sold the stock on July30, 2014, for $33,000. After giving the matter more thought, she decides that Aqua is a good investment and purchases 1,000 shares for $30,000 on August 20, 2014.a. What is Tyneka’s basis for the 1,000 shares purchased on August 20, 2014?
b. What would be Tyneka’s basis for the 1,000 Aqua shares inherited from Joe if she had given 1,000 Aqua shares to Joe on March 1, 2013 (assuming that no gift tax was paid)?
Her basis at the date of the gift was $35,000, and the fair market value was $45,000.
c. Could Tyneka have obtained different tax consequences in (a) if she had sold the1,000 shares on December 27, 2013, and purchased the 1,000 shares on January 5,2014? Explain.69. LO.1, 2, 5 Abby’s home had a basis of $360,000 ($160,000 attributable to the land) and a fair market value of $340,000 ($155,000 attributable to the land) when she converted70% of it to business use by opening a bed and breakfast. Four years after the conversion, Abby sells the home for $500,000 ($165,000 attributable to the land).
a. Calculate Abby’s basis for gain, loss, and cost recovery for the portion of her personal residence that was converted to business use.
b. Calculate the cost recovery deducted by Abby during the four-year period of business use, assuming that the bed and breakfast is opened on January 1 of year 1 and the house is sold on December 31 of year 4.
c. What is Abby’s recognized gain or loss on the sale of the business use portion?70. LO.5 Surendra’s personal residence originally cost $340,000 (ignore land). After living in the house for five years, he converts it to rental property. At the date of conversion, the fair market value of the house is $320,000. As to the rental property, calculate
Surendra’s basis for:
d. Could Surendra have obtained better tax results if he had sold his personal residence for $320,000 and then purchased another house for $320,000 to hold as rental property?
Explain.71. LO.7 Katrina owns undeveloped land with an adjusted basis of $300,000. She exchanges it for other undeveloped land worth $750,000.
a. What are Katrina’s realized and recognized gain or loss?
b. What is Katrina’s basis in the undeveloped land she receives?
c. Would the answers in (a) and (b) change if Katrina exchanged the undeveloped land for land and a building? Explain.72. LO.7 Kareem owns a pickup truck that he uses exclusively in his business. The adjusted basis is $22,000, and the fair market value is $14,000. Kareem exchanges the truck for a truck that he will use exclusively in his business.
a. What are Kareem’s realized and recognized gain or loss?
b. What is his basis in the new truck?
c. What are the tax consequences to Kareem in (a) and (b) if he used the old truck and will use the new truck exclusively for personal purposes?73. LO.7 Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2013, she exchanges it with her sister,
Lisa, for undeveloped land on the West Coast and $3,000 cash. Lisa has an adjusted basis of $72,000 for her land, and its fair market value is $89,000. As the real estate market on the East Coast is thriving, on September 1, 2014, Lisa sells the land she acquired for $120,000.
a. What are Tanya’s recognized gain or loss and adjusted basis for the West Coast land on January 4, 2013?
b. What are Lisa’s recognized gain or loss and adjusted basis for the East Coast land on
January 4, 2013?
c. What is Lisa’s recognized gain or loss from the September 1, 2014 sale?
d. What effect does Lisa’s 2014 sale have on Tanya?
e. Write a letter to Tanya advising her on how she could avoid any recognition of gain associated with the January 4, 2013 exchange prior to her actual sale of the land. Her address is The Corral, El Paso, TX 79968.74. LO.7 Sarah exchanges a yellow bus (used in her business) for Tyler’s gray bus and some garage equipment (used in his business). The assets have the following characteristics:
Yellow bus $6,000 $15,000
Gray bus 3,000 11,000
Equipment 2,000 4,000
a. What are Sarah’s recognized gain or loss and basis for the gray bus and garage equipment?
b. What are Tyler’s recognized gain or loss and basis for the yellow bus?75. LO.7, 11 In two unrelated transactions, Laura exchanges property that qualifies for like-kind exchange treatment. In the first exchange, Laura gives up office equipment purchased in May 2011 (adjusted basis of $20,000; fair market value of $17,000) in exchange for new office equipment (fair market value of $15,000) and $2,000 cash. In the second exchange, Laura receives a parking garage (to be used in her business) with a fair market value of $50,000 in exchange for a plot of land she had held for investment.
The land was purchased in April 2005 for $12,000 and has a current fair market value of $48,000. In addition to transferring the land, Laura pays an additional $2,000 to the other party.
a. What is Laura’s adjusted basis for the office equipment?
b. When does the holding period begin?
c. What is Laura’s adjusted basis for the parking garage?
d. When does the holding period begin?
e. How could Laura structure either of the transactions differently to produce better tax consequences?