practice exam 2 solutions

practice exam 2 solutions - Tax 4001 Fall 2011 Hampton...

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Tax 4001 Fall 2011 Hampton Solutions Practice Problems, Exam II 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) or (37,000 – 12,000) Maude’s basis in motorcycle $8,000 (FMV) b. Cane Corporation’s showroom is destroyed by a hurricane in September, 2010, when its basis is $130,000, and its FMV is $180,000. The insurance company reimburses Cane $180,000. In December, 2010, Cane Corporation purchases a new showroom for $140,000. Cane’s Recognized Gain $40,000 (the unreinvested proceeds) Cane’s Basis in new showroom $130,000 ( $140,000 cost - $10,000 deferred gain) 2. White Corporation’s first disposition of a Section 1231 Asset occurred in 2006. Fill in the table below to indicate the character of White’s Net 1231 Gain/(losses) for the period 2006-2010. Year Sec 1231 Gains Sec 1231 Losses Ordinary Income (loss) Capital Gain (loss) 2006 $10,000 $8,000 $2,000 2007 $10,000 $15,000 ($5,000) 2008 $6,000 $5,000 $1,000 2009 $9,000 $3,000 $4,000 $2,000 2010 $2,000 $8,000 ($6,000)
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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. 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 loss on the boot property of $3,000. Basis in rental house = 47,000 + 9,000 – 3,000 = $53,000 or 61,000 – 8,000 = $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? Joy’s depreciation basis = Melody’s adjusted basis = $9,500.
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practice exam 2 solutions - Tax 4001 Fall 2011 Hampton...

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