Fall 2007, Test III, Multiple Choice
Identify the choice that best completes the statement or answers the question.
Carlton purchases land for $300,000. He incurs legal fees of $5,000 associated with the purchase. He sub-
sequently incurs additional legal fees of $20,000 in having the land rezoned from agricultural to residential.
He subdivides the land and installs streets and sewers at a cost of $600,000. What is Carlton’s basis for the
land and the improvements?
Sandra’s automobile, which is used exclusively in her trade or business, was damaged in an accident. The ad-
justed basis prior to the accident was $11,000. The fair market value before the accident was $10,000 and the
fair market value after the accident is $6,000. Insurance proceeds of $3,200 are received. What is Sandra’s ad-
justed basis for the automobile after the casualty?
Shontelle received a gift of income-producing property with an adjusted basis of $50,000 to the donor and fair
market value of $40,000 on the date of gift. Gift tax of $6,000 was paid by the donor. Shontelle subsequently
sold the property for $45,000. What is the recognized gain or loss?
Taylor inherited 100 acres of land on the death of his father in 2007. A Federal estate tax return was filed and
this land was valued at $15,000, its fair market value at the date of the father’s death. The father had origin-
ally acquired the land in 1940 for $2,000 and prior to his death he had expended $1,000 on permanent im-
provements. Determine Taylor’s holding period for the land.
Will begin with the date his father acquired the property.
Will automatically be long-term.
Will begin with the date of his father’s death.
Will begin with the date the property is distributed to him.
Arthur owns a tract of undeveloped land (adjusted basis of $145,000). He sells the land to his son, Art, for
$105,000, its fair market value. What is Arthur’s recognized gain or loss, and what is Art’s basis for the land?
$0 and $105,000.
$0 and $145,000.
($40,000) and $105,000.
($40,000) and $145,000.