Practice Exam 2 Solutions - 1. For each of the following...

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1. For each of the following transactions, identify how much gain the taxpayer will recognize and the taxpayer’s basis in the new property.a. Maude exchanges computer equipment with a basis of $25,000 and a FMV of $45,000, for computer equipment with a FMV of $37,000 and a motorcycle with a FMV of $8,000. Maude’s Recognized Gain _____ $8,000 (motorcycle is boot property) Maude’s basis in new computer equipment ___ $25,000 (25,000 + 8,000 – 8,000) Maude’s basis in motorcycle _______ $8,000 (FMV) b.Cane Corporation’s warehouse is destroyed by a hurricane in September, 2009, when its basis is $130,000, and its FMV is $180,000. The insurance company reimburses Cane $180,000. In December, 2009, Cane Corporation purchases a new warehouse for $140,000. Cane’s Recognized Gain _______ $40,000 (the unreinvested proceeds) Cane’s Basis in new warehouse ____$130,000 2. White Corporation’s first disposition of a Section 1231 Asset occurred in 2005. Fill in the table below to indicate the character of White’s Net 1231 Gain/(losses) for the period 2005- 2009. Year Sec 1231 Gains Sec 1231 Losses Ordinary Income (loss) Capital Gain (loss) 2005 $10,000 $8,000 $2,000 2006 $10,000 $15,000 ($5,000) 2007 $6,000 $5,000 $1,000 2008 $9,000 $3,000 $4,000 $2,000 2009 $2,000 $8,000 ($6,000) 3. Taxpayer exchanges an apartment building with an adjusted basis of $47,000 and a FMV of $55,000, and boot (Green, Inc stock) with an adjusted basis of $9,000 and a FMV of $6,000 for a rental house with a FMV of $61,000 in a like-kind exchange. What is the recognized gain or loss and what is the taxpayer’s basis in the rental house? Taxpayer has a realized gain of $8,000 on apartment building. Zero is recognized. Taxpayer has a realized and recognized a loss on the boot property of $3,000. Basis in rental house = 47000 + 9,000 – 3,000 = $53,000. 4. Melody gives her niece, Joy, a machine to be used in her business with a FMV of $8,500 and an adjusted basis in Melody’s hands of $9,500. What is Joy’s basis for depreciation? Assuming Joy takes $3,000 of depreciation and then sells the machine for $4,000, how much is her recognized gain or loss?
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Practice Exam 2 Solutions - 1. For each of the following...

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