Leah Pasternak Federal Taxation ACC307 Chapter 13: Property Transactions Homework Submission 2.

. Carol is the only one who realizes the loss of $2,000 because she sold her stock. Although Daves value has also decreased by $2,000 there is no tax treatment that would be applied because he did not sell his stock. 12 a. Losses on the sale of personal use assets is disallowed so Sandra cannot use the gain of $14,000 to offset her loss of $18,000. b. Even if she sold her assets in different tax years Sandra would still be taxed on the gain of $14,000 and the loss of $18,000 would still be disallowed. 14. The recovery of capital doctrine is not completely applicable in determining the amount of the exclusion. The relationship between the recovery of capital doctrine and the exclusion under 101(a)(1) can be viewed in a couple of ways. Since the $500,000 exclusion is not dependent on the recovery of capital doctrine, then there is no relationship. On the other hand, the relationship between the two does exist in regards to the $115,000, but it does not exist in regards to the remaining $385,000 of the life insurance proceeds. 17. Property acquired as means of a gift normally would have a carryover basis, but inherited property receives a step-up or step-down in basis. I would need to know whether Simons adjusted basis in the stock is greater than or less than $50,000. If the adjusted basis is less than $50,000, then a recognized gain occurs to Simon if he sells the stock and gives the proceeds as a gift. If Simon gives the stock to Fred and then Fred sells it, then he would have the recognized gain. If Fred were to inherit the stock from Simon, then his adjusted basis is the fair market value at the date of death. Any appreciation would not be subject to income tax. If the adjusted basis of the stock is greater than $50,000, the sale of the stock by Simon would result in a recognized loss. He could then give the proceeds to Fred. If Fred were to inherit the stock, then again, his adjusted basis is the fair market value at the date of death. The decline in value while Fred held the property would not be recognized by either. 43. In short, the definition of a principal residence is the primary residence that a person inhabits. It is where a person lives most of the time. To be eligible for the principal residence exclusion the residence must have been owned and used by the taxpayer as the principal residence for at least two years during the five-year window (subject to partial exclusion treatment under the relief provision). Whether the property is the taxpayers principal residence is all dependent upon all of the facts and circumstances in each case. It should also be noted that a principal residence does not have to be an actual house. A motor home, a house boat or a trailer can also qualify as a taxpayers principal residence. Some land can even qualify under certain circumstances for the exclusion treatment. A person may only qualify for one principal residence, so no, they may not have multiple at the same time. 44 a. Nancy qualifies for the postponement of gain treatment because she sold her stock in Rose and then reinvested in Lime within the 60 day time limit. Therefore, Nancys adjusted basis for her Lime stock would be $50,000 not $45000. This is calculated as follow:

Adjusted basis for Rose stock Additional cash invested in Lime stock ($65,000 $60,000) Adjusted basis for Lime stock

$45,000 5,000 $50,000

b. The rollover provision does not apply if she would have purchased the replacement stock on July 15 rather than on May 31. Samanthas adjusted basis for the replacement stock is the cost of $65,000. 66 a. Amount realized Less: Adjusted basis Realized loss Less: Disallowed loss Joyces Recognized loss $115,000 (120,000) ($ 5,000) 5,000 $ 0

b. Amount realized Less: Adjusted basis Realized gain Less: Amount of Joyces previously disallowed loss necessary to eliminate Iriss realized gain Iriss Recognized gain c. Amount realized Less: Adjusted basis Joyces Realized gain Joyces Recognized gain

$119,000 (115,000) $ 4,000

(4,000) $ 0

$130,000 (120,000) $ 10,000 $10,000

d. Since Hector is not a related party to Joyce, the loss disallowance provision would not apply. Amount realized Less: Adjusted basis Joyces Realized loss Joyces Recognized loss $115,000 (120,000) ($ 5,000) ($5,000)

e. Joyce should sell the real estate to Hector for its fair market value of $115,000 since she can avoid the loss disallowance provision, and because eventually her sister Iris would sell the property.

71 a. Amount realized Adjusted basis Libbys Realized gain (can be postponed) Libbys Recognized gain b. Libbys basis in the undeveloped land is $500,000.

$750,000 (500,000) $250,000 $0

c. No the answers would not change because the property would be considered like-kind property. 74 a. Amount realized for Gray bus + equipment Adjusted basis for gray bus + equipment Sarahs Realized gain Sarahs Recognized gain $15,000 (6,000) $9,000 $4,000

Sarah qualifies for the like-kind exchange treatment. The receipt of the equipment causes $4,000 of Sarahs realized gain to be recognized. Her adjusted basis for the gray bus is $6,000 and for the equipment is its fair market value of $4,000. b. Amount realized for the yellow bus Adjusted basis ($3,000 gray bus + $2,000 equipment) Tylers Realized gain Tylers Recognized gain $15,000 (5,000) $10,000 $2,000

Tyler also qualifies for the like-kind exchange treatment. Since the equipment is considered appreciated boot, the amount of the appreciation of $2,000 is recognized. Tylers adjusted basis for the yellow bus is $7,000. 83. Amount realized Adjusted basis Howards Realized loss Howard Recognized loss $240,000 (275,000) ($35,000) ($35,000)

Howard has a recognized loss of $35,000. A realized loss on the business property is recognized. His adjusted basis for the new roadside vegetable stand is his cost of $285,000.