Spring 2011

Homework Set #5 Solution

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# 1 a)

Amount Realized$37,500

Basis(45,000)

Real Loss(7,500)

Recognized Loss$0 because personal use asset

c.The real loss is $0.

b) Same as (a). Like-kind exchange rules do not apply to personal-use assets

c)Her recognized loss is $0. Since the form of the transaction is a theft, the recognized loss is the lesser of the adjusted basis or the fair market value of the asset, reduced by the insurance proceeds that she received (see Chapter 6). Therefore, the opportunity for the theft loss deduction on personal use property is not present in this case because the insurance proceeds received of $37,500 equal the fair market value of $37,500.

#2

a.

amt realized$65,000 "loss" basis 76,000

Recognized Loss(11,000)

b.$0. The proceeds of $68,000 are between the gain basis of $80,000 and the loss basis of $60,000. Therefore, neither gain nor loss is recognized.

#3

a.$225,000

b.$200,000 (note: only the building can be depreciated)

c.$225,000 Basis for the gain is adjusted basis

d.She would be better off to sell the house and buy another one. Because the house is her personal residence, she could exclude the gain on sale. Then she would be able to depreciate the new house at a higher basis

#4

a.

Amt. Realized$265,000

Adj Basis 175,000

Real Gain90,000 b.

Recoginzed Gain is $65,000 which is the less of realized gain or boot received. c. Adjusted basis of Land| $175,000|

Gain Recognized| 65,000|

Boot| (65,000)|

Adj Basis of Building| 175,000|

.

Tax 4001

Spring 2011

Homework Set #5 Solution

PAGE 2

.

#5

Amt. Realized$1,235,000 [125000 + 900000 + 210000] Less: Basis of Apt850,000

Real Gain 385,000

b.

Recog Gain$335,000 Cash plus mortgage

Postponed Gain$50,000

c.| |

Basis of Apt Bldg| $850,000|

+ gain recognized| 335,000|

Less: Boot received| (335,000)|

Basis of Office Bldg| $850,000|

#6| |

Cost| $200,000|

Legal Fees| $21,500|

Streets and Sewers| $700,000|

Basis| $921,500|

#7

Basis b4 casualty$10,000

Insurance proceeds 13,500

Casualty Gain3,500

Basis after insurance -

#8

FIFO method used to determine which shares were sold, therefore Tommy Is treated as having sold 100 of the shares he purchased on 10/16/06

Per Share Basis = $7500/125 shares = $ X Number of Shares Sold (100) =$

60

6,000

per share

Basis of Shares Sold

Sales Procceds| 18,000|

Less: Basis| (6,000)|

LTCG| $ 12,000|

Tax 4001

Spring 2011

Homework Set #5 Solution

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30.| a.| Realized gain- $9,000 [($12,000 fair market value of new asset+ $4,000 boot received)-$7,000 adjusted basis of old asset]. Recognized gain= $4,000.| | | Postponed gain= $5,000.|

| | New basis= $7,000 ($12,000 fair market value of new asset- $5,000 postponed gain).| | b.| Realized loss = $1,000.|

| | Recognized loss= $-0-.|

| | Postponed loss= $1,000.|

| | New basis= $16,000 ($15,000 fair market value of new asset+ $1,000 postponed loss).| | c.| Realized loss = $1,500. Recognized loss= $-0-.|

| | Postponed loss= $1,500.|

| | New basis= $9,500 ($8,000 fair market value of new asset+ $1,500 postponed loss).| | d.| Realized gain= $10,000. Recognized gain = $-0-.|

| | Postponed gain= $10,000.|

| | New basis = $22,000 ($32,000 fair market value of new asset - $10,000 postponed| | | gain).|

| e.| Realized gain = $2,000.|

| | Recognized gain= $1,000.|

| | Postponed gain= $1,000.|

| | New basis= $10,000 ($11,000 fair market value of new asset- $1,000 postponed gain).| | f.| Realized loss = $2,000. Recognized loss= $-0-.|

| | Postponed loss= $2,000.|

| | New basis= $10,000 ($8,000 fair market value of new asset+ $2,000 postponed loss).|

Tax 4001

Spring 2011

Homework Set #5 Solution

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