True the loss not recognized in a wash sale is added

27.
merely postponed until the taxpayer sells the stock in a nonwash sale transaction.
31.

550 CCH Federal Taxation—Basic Principles
Chapter 10 © 2010 CCH. All Rights Reserved.
32.
34.
the donor and a lesser fair market value.
35.

551 Testbank
© 2010 CCH. All Rights Reserved. Chapter 10
ANSWERS TO MULTIPLE CHOICE QUESTIONS—CHAPTER 10
a. The $50,000 unreimbursed loss is a reduction in basis and the $150,000 receipt of insurance proceeds is 36.
also a reduction in basis. Leonard’s basis in the building before repairs is $300,000 ($500,000 - $50,000 -
$150,000).
b. The sale and subsequent purchase of 50 shares is a wash sale since March 8 to March 29 is 21 days. 37.
However, the loss on the other 50 shares may be recognized.
b. An adjustment is to be made to the basis of an asset for the amount of depreciation allowed in previous 38.
years, but the adjustment cannot be less than the amount allowable. Therefore, the adjusted basis of the
asset when sold was $20,000 ($70,000 - $50,000).
b. Assessments for the maintenance of sidewalks are ordinary expenses of operation. Depreciation is 39.
incorrect because basis must be reduced by depreciation. Cash rebates are a reduction in purchase price and
casualty losses also reduce basis.
b. Bob would add $20,000 of the gift tax on to the aunt’s basis of $73,000 to get $93,000. The $20,000 40.
is computed by multiplying the $30,000 gift tax by a fraction the numerator of which is the $120,000
appreciation and the denominator is the $180,000 taxable gift.
b. Automatic would have a realized loss of $20,000, which is $80,000 less the basis of $100,000. However, 41.
the recognized loss for Automatic would be $0 because this was a sale to a related party, in that Jack
owned more than 50% of the stock of Automatic. When Jack sells the property to an unrelated party for
$110,000, he has a realized gain of $30,000 ($110,000 less $80,000), which can be reduced by Automatic’s
disallowed loss of $20,000 to give a recognized gain of $10,000.
d. The amount realized after selling expenses is $530,000 ($400,000 + $150,000 - $20,000) and the 42.
adjusted basis is $200,000 ($250,000 + $50,000 - $100,000). Therefore, the gain is $330,000 ($530,000 -
$200,000).
d. The amount realized is $57,500 ($15,000 cash + $20,000 fair market value of the equipment + $25,000 43.
mortgage assumed by Carla - $2,500 selling expenses).
b. The basis of property purchased under a bargain purchase is its fair market value or $8,500. 44.