Chap10%20HW%20Solutions - Instructor's Manual 153 10,201...

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Instructor's Manual 153 ¶10,201 Stock Transactions When a seller can identify the shares of stock sold or transferred, the basis is the basis of the stock so identified. If the shares of stock were purchased at different dates or at different prices and the lot from which the stock was sold or transferred cannot be adequately identified, the stock sold is charged against the earliest of the stock purchases (i.e., the FIFO rule). No deduction for losses is allowed on the sale of stock or securities if, within a period beginning 30 days before the date of the sale and ending 30 days after the date of sale, substantially identical stock or securities are acquired. The disallowed loss, however, is not ‘‘lost'' but is added to the basis of the newly acquired stock. ¶10,215 Personal-Use Property Conversion When property purchased for personal use is converted to business or income-producing use, the basis for determining loss is the lesser of (1) the fair market value of the property at the time of the conversion or (2) the adjusted basis for loss at the time of the conversion. ¶10,225 Related Parties No loss deduction is allowed on sales or exchanges of property, directly or indirectly, between certain related parties. Any losses disallowed, however, may be used to offset the gain realized by the related purchaser on a later sale of the property. This offset possibility is available only to the original transferee. ¶10,245 Installment Reporting An installment sale is a disposition of property where at least one payment is to be received after the close of the taxable year in which the disposition occurs. The installment method allows gain to be spread over more than one year. The amount of income recognized is the proportion of the payments received in the year which the gross profit bears to the total contract price. ANSWER TO KEYSTONE PROBLEM—CHAPTER 10 (¶10,215.) 1. For a purchase of an asset, the initial basis is its cost. 2. For a bargain purchase, the initial basis is its fair market value. 3. For assets included in a lump-sum purchase, the total cost must be allocated among the separate properties according to their relative fair market value. 4. A taxpayer's original basis for property acquired by gift is the same as the property's adjusted basis in the hands of the donor or the last preceding owner by whom it was not acquired by gift. If, however, the property's fair market value at the time of the gift is less than the adjusted basis to the donor, then the basis for determining loss is the fair market value at the time of the gift. A selling price of gift property between the basis for determining gain and a lesser fair market value will result in neither gain nor loss. For gifts made after December 31, 1976, the basis is increased by the portion of gift tax that is attributable to the net appreciation in value of the gift. For gifts made prior to 1977, the full amount of the gift tax is added to the donor's adjusted basis, but the
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This homework help was uploaded on 04/09/2008 for the course ACCT Acct 308 taught by Professor Lau during the Summer '06 term at CSU Fullerton.

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Chap10%20HW%20Solutions - Instructor's Manual 153 10,201...

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