tax14 - 10/29/2009 BA 453 Homework Chapter 14 Homework...

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Homework Chapter 14 Homework Chapter 14 Read the Chapter and answer numbers 1,9,10,12,19,26,28,30,31,34,36,40,42,44,52 and 58 1. Is there a realized gain or loss? If so, is the realized gain or loss recognized? If the realized gain or loss is recognized, is it classified as ordinary or capital? What is the basis of replacement property, if any, that is acquired? 9. a. Eve’s basis is the cost of $500,000 ($100,000 + $400,000). Whether the full acquisition price is paid in cash is not relevant. b. Eve’s basis for the land remains at $500,000. The interest paid does not affect the adjusted basis. p. 14-3 10. a. One factor that could contribute to this result is that mortgages are granted based on the fair market value of the property rather than based on the taxpayer’s adjusted basis for the property. Another factor is that depreciation deductions in the early life of the asset may have exceeded the amortization of the mortgage principal. Also, it is possible that the property declined in value after the mortgage was granted. b. The amount realized is $360,000, the full amount of the debt forgiveness. The Supreme Court ruled in Tufts that the fair market value of the property does not serve as a ceiling on the debt forgiveness in calculating the amount realized. The adjusted basis is not affected (i.e., it remains at $75,000). Therefore, the realized gain is $285,000 ($360,000 – $75,000). c. No. In either case, the amount realized is $360,000. The justification for this treatment for the non recourse mortgage is that the taxpayer initially benefited when the mortgage was incurred in terms of increasing the property’s adjusted basis (e.g., if the purchase price is $500,000 of which $400,000 is financed by a non recourse mortgage, the basis is $500,000). pp. 14-3 to 14-5
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This note was uploaded on 04/20/2010 for the course BA 453 taught by Professor Guild during the Fall '09 term at Humboldt State University.

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tax14 - 10/29/2009 BA 453 Homework Chapter 14 Homework...

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