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1. On January 15 of the current taxable year, Merle sold stock with a cost of $40,000 to his brother Ned for $25,000, its fair market value. On June 21, Ned sold the stock to a friend for $26,000.
a. What are the tax consequences to Merle and Ned?
b. Would Ned recognize any gain if he sold the stock for $41,000?
2. Monica sells a parcel of land to her son, Elbert, for $90,000. Monica’s adjusted basis is $100,000. Three years later, Elbert gives the land to his fiancée, Karen. At that date, the land is worth $104,000. No gift tax is paid. Since Elbert is going to be stationed in the U.S. Army in Germany for 3 years, they do not plan on being married until his tour is completed. Six months after receiving the land, Karen sells it for $110,000. At the same time, Karen sends Elbert a “Dear John” email. Calculate Karen’s realized and recognized gain or loss.
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3. Mitch owns 1,000 shares of Oriole Corporation common stock (adjusted basis of $15,000). On April 27, 2014, he sells 400 shares for $5,200, while on May 5, 2014, he purchases 200 shares for $3,600.
a. What is Mitch’s recognized gain or loss resulting from these transactions?
b. What is Mitch’s basis for the stock acquired on May 5, 2014?
c. Could Mitch have obtained different tax consequences in a. and b. if he had sold the 400 shares on December 27, 2014, and purchased the 200 shares on January 5, 2015?
a. Mitch’s adjusted basis for the stock acquired on May 5, 2014, is $4,000 ($3,600 purchase price + $400 disallowed loss).
b. The tax consequences would have been the same. Mitch has a wash sale to the extent of the 200 shares purchased. To avoid the limitations of the wash sale, he should not purchase substantially identical stock within the 60-day window for a wash sale.
4. Marsha transfers her personal use automobile to her business (a sole proprietorship). The car’s adjusted basis is
$30,000 and the fair market value is $16,000. No cost recovery had been deducted by Marsha, since she held the car for personal use. Determine the adjusted basis of the car to Marsha’s sole proprietorship including the basis for cost recovery.
5. Jacob owns land with an adjusted basis of $140,000 and a fair market value of $115,000. Determine the amount of realized and recognized gain or loss to the seller and the adjusted basis for the buyer for each of the following.
a. Jacob sells the land for $115,000 to a corporation in which he owns 60% of the stock.
b. Jacob sells the land for $115,000 to a partnership in which he has a capital and profits interest of 60%.
6. For the following exchanges, indicate which qualify as like-kind property.
a. Inventory of a sporting goods store in Charleston for inventory of an appliance store in Savannah.
b. Inventory of a ladies dress shop in Cleveland for inventory of a ladies dress shop in Richmond.
c. Investment land in Virginia Beach for office building in Williamsburg.
d. Used automobile used in a business for a new automobile to be used in the business.
e. Investment land in Paris for investment land in San Francisco.
f. Shares of Texaco stock for shares of Exxon Mobil stock.
7. Chaney exchanges a truck used in her business for making deliveries for a smaller more fuel-efficient truck to be used in her business for making deliveries. The adjusted basis for her truck is $32,000. The smaller truck has a fair market value of $33,000. In addition, Chaney receives cash of $4,000.
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