Basis
For most assets, how do you calculation adjusted basis
Cost on the date of acquisition
+ Capital improvement or additions
- Cost Recovery/depreciation and other capital recoveries
What is the formula for the calculation of realized gain and loss?
Amount Realized
- Adjusted Basis
- Selling Expenses (if not included in amount realized)
John buys the following:
100 shares of OTA Inc for $2 each on 1/1/X2
50 shares of OTA Inc for $3 each on 3/5/X2
40 shares of OTA Inc for $4 each on 6/9/X2.
John sells 50 shares on 7/6/X3 for $4 each. What is his gain/loss?
$200 (50*$4) less $100 (50*$2) = $100
What code section defines related parties for determination of "attrition" or constructive ownership?
Section 267
Name 3 of the 5 exceptions exceptions for determining cost basis
Bargain Purchase
Several Assets purchased for 1 price
Assets received as a gift
Assets received as part of an inheritance
Assets received as part of a tax free exchange
How do you calculation Amount Realized?
Money Received
+ FMV of other property received
+ Debt Relief
- Selling Expenses
Raymond exchanges an apartment building with a basis of $1,000,000 and a FMV of $1,500,000 for a factory building with a FMV of $1,500,000. What is Raymond's realized and recognized gain? What is Raymond's basis in the factory building?
Define "wash sale"
Sale of stock at a loss and then replacing the stock sold by buying identical shares shortly before or after the sale
What is a bargain purchase price?
An asset is transferred at less than fair market value
What is "Debt Relief"
Debt given up less debt assumed
RIA Inc. gives inventory with a FMV of $40,000 to a social media influencer in 20X4. In 20X5, the social media influencer sells the inventory for $45,000. For the influencer, what is the tax consequence for receiving the inventory and for reselling it?
$40,000 of income when received the inventory
$5,000 of income when selling the inventory
If an asset is sold at a loss to a related party when is that loss able to be recognized?
It can only be recognized when it is sold to an unrelated 3rd party and it offsets a gain
They have a dual basis.
Gain basis = donor's basis
Loss basis = FMV on date of gift
Define Boot and give an example
Boot is anything in addition to the elements exchanged. Or property that is not like kind.
Cash
Other property
Debt Relief
Rhonda exchanges a piece of equipment with a basis of $10,000 and a FMV of $15,000 for a different piece of equipment with a FMV of $7,000 and stock with a FMV of $8,000. What is Rhonda's realized and recognized gain?
Amount realized = $7,000 + $8,000 = $15,000
Basis = $10,000
Realized gain and recognized gain = $5,000
What are the basic requirement for a 1031 exchange?
Property must be like kind
Used in exchange
Both property received and property given up must be either used in a trade or business or held for investment
How do you determine fair market value if the value of the property received cannot be determined?
The value of the property given up may be used
Evelyn and George purchased a home in sunny California in 1943 for $70,000. In 20X5 they sell their home for $670,000. What is their realized and recognized gain?
$670,000 - $70,000 = $600,000
$600,000 realized gain
-$500,000 exclusion
=$100,000 recognized gain
Monica and Josh enter into a 1031 exchange transaction. Monica exchanges 100 acres of farmland with a basis of $100,000, FMV of $250,000 subject to a mortgage of $25,000 for Josh's apartment building with a FMV of $225,000 and Josh assumes Monica's mortgage. How much gain is recognized by Monica and what is her basis in the apartment building?
Amount Realized
$225,000 property + $25,000 debt relief - $100,000 = $150,000 realized gain
Boot = $25,000, therefore a gain of $25,000 recognized
Basis = $100,000 + $25,000 = $125,000
How are related parties defined for constructive ownership?
Brothers and sisters, spouse parents, grandparents, children and grandchildren
a corp that is owned more than 50% directly or indirectly
2 corps that are members of a controlled group
a series of other complex relationships