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Chapter 649 10 Property Transactions - Chapter 649 10...

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Chapter 649 10 Property Transactions: Determination of Basis and Gains and Losses TRUE- FALSE QUESTIONS CHAPTER 10 *Some of the true-false questions have been adapted from the IRS Examinations. 1. Terry Trumbull purchased a tract of land. In order to have city water, he had to pay the water company $5,000 to extend the water line to his property. The $5,000 cost is an addition to the basis of the land. 2. When property that is subject to an existing debt is purchased, the basis of the property is the amount of cash paid initially plus the unpaid debt to which the property is subject. 3. The basis for nonbusiness property changed to business use is the greater of the adjusted basis of the property or its fair market value on the date it is converted to business use. 4. During 2009, Carl Crofts received a gift of property having a fair market value of $25,000 at the time of the gift. The donor s adjusted basis in the property at the time of the gift was $21,000. The donor paid a gift tax of $700 on the property. Carl s basis in the property is $21,700. 5. In 2009, Tom Turner received a gift of property that had a fair market value of $10,000 at the time of the gift. The donor s adjusted basis in the property at the time of the gift was $12,000. Tom s basis for computing depreciation is $12,000. 6. When new stock received as a dividend is identical to the old stock on which the dividend is declared, the adjusted basis of the old stock must be apportioned among the shares of old stock and the shares of new stock received as a dividend. 7. David Dawson owned two shares of a corporation s common stock. He paid $60 for one share and $30 for the other share. The corporation declared a stock dividend which gave stockholders two new shares of common stock for each share they held. After the distribution, David owns six shares of stock with an adjusted basis of $15 each. 8. If nontaxable stock rights are allowed to expire, they have no basis. 9. In a gain situation, the holding period of gift property begins on the date of the gift. 10. Richard Rhodes sold his warehouse at a loss to his brother. The loss is deductible by Richard. 11. If a wife sells depreciable property to her husband, the gain on the sale is treated as ordinary income. 12. The adjusted basis of property is its cost plus capital recoveries less capital expenditures. 13. To determine the initial basis of purchased property, cost is used unless it is a bargain transaction in which case its fair market value is used. 14. The basis of property acquired by inheritance is the lower of the decedent s adjusted basis or the fair market value on the date of the death of the decedent. 15. The holding period of property acquired from a decedent is considered to be long term regardless of when the property was acquired or disposed of. 16. Gains are recognized on sales involving property used for business or income-producing purposes or for personal purposes. 17. Increases in basis decrease the amount of gain realized or increase the amount of realized loss. 18. Depreciation, depletion, amortization, and acquisition costs are all capital returns. 19. Recognition of a gain or
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