SU 6: Basis and Property Transactions

You usually live and work in St. Louis, but you are assigned to a job in Little Rock for an indefinite period of time. How much, if any, of the following monthly expenses can you deduct? Rent $1,000 Meals 230 Travel to home one weekend 35 $1,150 $1,035 $1,265 $0

$0. Indefinite is changing tax home, so not deductible.

Bennet Hanover purchased a tract of land for $20,000 in Year 1 when he heard that a new highway was going to be constructed through the property and that the land would soon be worth $200,000. Highway engineers surveyed the property and indicated that he would probably get $175,000. The highway project was abandoned in Year 3, and the value of the land fell to $15,000. Hanover can claim a loss in Year 3 of $0 $180,000 $5,000 $160,000

$0. Not disposed of the land, so no realized loss.

A tornado destroyed Ian's forklift in 2021. Ian had purchased the forklift for $8,000 and had correctly deducted $6,000 of depreciation. Ian's adjusted basis in the forklift was $2,000. Ian's insurance company reimbursed him $9,000, and he spent $7,500 for a new forklift. How much ordinary income should Ian report on his 2021 income tax return? $6,000 $7,000 $0 $1,500

$1,500. 9,000-7,500= 1,500.

Rich, Inc., a calendar-year taxpayer employing the accrual method of accounting, acquired a business warehouse building in Year 1 for $100,000. Rich deducted $3,000 in warehouse asset depreciation expense on December 31, Year 1. In January of Year 2, Rich incurred a $2,000 legal bill, successfully defending its title to the building. Later in the year, a second-floor office was added to the warehouse at a cost of $10,000. Rich deducted $5,000 in warehouse asset depreciation expense on December 31, Year 2. What is Rich, Inc.'s adjusted basis in the warehouse asset on January 1, Year 3? $100,000 $104,000 $110,000 $112,000

$104,000. 100,000-3,000 depr. in Year 1=2,000 legal fees+ 10,000 expansion-5,000 depr. in Year 2= 104,000.

ABC Corp. leases two buildings. The first lease started January 1, Year 1, and was for 3 years at $10,000 per year rent. ABC paid $30,000 in January for the entire 3-year term. The second lease started July 1, Year 1, and was for 5 years at $6,000 per year rent. ABC paid $30,000 in June for the entire 5-year term. What is the total rent expense ABC Corp. may deduct in Year 1? $60,000 $13,000 $13,500 None of the answers are correct.

$13,000. (10,000x1 year)+(6,000x0.5 year)= 13,000

Vagabond Corporation was organized and began active business on January 2 of the current year. Vagabond incurred the following expenses in connection with creating the business: State incorporation fees $ 2,000 Legal fees for drafting the charter 6,000 Printing costs for stock certificates 1,500 Professional fees for issuance of stock 4,000 Broker's commissions on sale of stock 7,000 Expense for temporary directors 5,000 Total $25,500 What is the amount of organizational expense that Vagabond Corporation incurred? $25,500 $14,500 $18,500 $13,000

$13,000. 2,000+6,000+5,000= 13,000.

Jerome owns a building held for investment purposes that has an adjusted basis to him of $150,000 and a fair market value of $430,000. This building is subject to a mortgage of $90,000. Jake would like to purchase Jerome's building and makes the following offer: $50,000 in cash; assumption of Jerome's mortgage; a building owned by Jake that he holds for investment purposes and has a fair market value of $300,000. The building is not subject to a mortgage. What is Jerome's taxable gain if he accepts Jake's offer and continues to hold Jake's building for investment? $290,000 $150,000 $240,000 $140,000

$140,000. 50,000+90,000= 140,000. Less than realized gian of 290,000(440,000-150,000)

Tom owns a building held for investment purposes that has an adjusted basis of $150,000 and a fair market value of $440,000. This building is subject to a mortgage of $90,000. Bob would like to purchase Tom's building and makes the following offer: $50,000 in cash Assumption of Tom's mortgage A building owned by Bob that he holds for investment purposes that has a fair market value of $300,000. (The building is not subject to a mortgage.) What is Tom's taxable gain if he accepts Bob's offer and continues to hold Bob's building for investment? $240,000 $140,000 $290,000 $150,000

$140,000. The amount of boot received is $140,000(50,000 cash+ 90,000 liability relief). Used because it was lesser than the gain on the exchange, $290,000.

Katrina transferred an apartment building held for investment to Mona in exchange for an office building. The apartment building was subject to a liability of $10,000 which Mona assumed for legitimate business purposes. The office building had an adjusted basis of $20,000 and a fair market value of $35,000. The apartment building had a fair market value of $50,000 and an adjusted basis of $30,000. Katrina received $5,000 cash in addition to receiving the office building. What is Katrina's recognized gain on this exchange? $15,000 $5,000 $20,000 $0

$15,000. 5,000 cash+ 10,000 liability=15,000 boot. Less than gain of 20,000(35,000+10,000+5,000-30,000)

Prime Corporation's building was destroyed by a tornado in a federally declared disaster area. The fair market value of the building at the time of the tornado was $400,000, and its adjusted basis was $350,000. The insurance proceeds totaled $500,000 as follows: $400,000 for the building. $100,000 for lost profits during rebuilding. Prime does not defer any gain under the involuntary conversion provisions of Sec. 1033. What amount of the insurance proceeds is taxable to Prime? $0 $50,000 $150,000 $100,000

$150,000. 100,000 lost profits+ 50,000 gain on building= 150,000.

John purchased a new gasoline-electric hybrid automobile on July 2, 2013, for $18,000. He also claimed a $2,000 clean-fuel vehicle deduction on his 2013 tax return for that vehicle. From 2013 through 2020, John used this automobile only for personal purposes. On January 1, 2021, he began using the hybrid automobile exclusively for business purposes. The fair market value of the automobile on that day was $17,000. What is the automobile's depreciable basis as of January 1, 2021? $15,000 $16,000 $17,000 $18,000

$16,000. 18,000-2,000= 16,000.

Several years ago, you paid $150,000 to build your home on a lot that cost you $50,000. Before converting the property to rental use last year, you paid $30,000 for permanent improvements to the house. You received a $5,000 easement payment from the State of California for use of the land for a power line. The county indicates the FMV of the house is $250,000 and the land is $100,000. What is your basis for depreciation? $250,000 $175,000 $150,000 $180,000

$180,000. 150,000+30,000= 180,000.

David owned a warehouse, which he used in his business for the past 2 years. Its adjusted basis was $13,500. David sells his warehouse to a dealer for $14,500. He then buys a new warehouse for $20,500 from the same dealer. What is David's basis in the newly acquired warehouse? $14,500 $20,500 $13,500 $19,500

$19,500. 13,500+6,000(20,500-14,500)= 19,500

Rebecca exchanges real estate held for investment with an adjusted basis of $400,000 and a mortgage of $100,000 for other real estate to be held for investment. The other party agrees to assume the mortgage. The fair market value of the real estate Rebecca receives is $500,000. She pays exchange expenses of $10,000. What amount of gain does Rebecca realize? $100,000 $190,000 $90,000 $200,000

$190,000. The real estate had an adjusted basis of $400,000 and was exchanged for property that has a FMV of $500,000. She was also relieved of a $100,000 mortgage, which is the same as receiving cash, and the $10,000 in expenses reduces the realized gain. Therefore, the realized, not recognized, gain is the $100,000 in the exchange of properties plus the $100,000 in mortgage relief minus the $10,000 in expenses to give a total gain of $190,000.

Ms. N's business building was destroyed by a hurricane. The building had an adjusted basis to Ms. N of $200,000 and a fair market value immediately before the hurricane of $300,000. Ms. N received a reimbursement of $270,000 from her insurance company and immediately spent $268,000 for a new business building. What amount must Ms. N include in her gross income? $(32,000) loss $(30,000) loss $70,000 gain $2,000 gain

$2,000 gain. 270,000-268,000=2,000.

In the current year, Mr. A sold an asset that originally cost $7,000. Mr. A incorrectly claimed $4,000 depreciation over a 5-year period. He should have claimed $5,000 depreciation. What was the adjusted basis when sold? $5,000 $2,000 $7,000 $3,000

$2,000. 7,000-5,000= 2,000

A fire in Mr. White's residence (in a federally declared disaster area) resulted in a loss of $2,600. Mr. White recovered only $1,600 from his insurance company and deducted a casualty loss of $500 ($1,000 unreimbursed loss, less $500 nondeductible on property used for personal purposes). By what amount must Mr. White reduce his basis before considering any reinvestment of the insurance proceeds in repairs on the house? $1,000 $2,600 $2,100 $1,600

$2,100. 1,600+500= 2,100.

A fire in Mr. White's residence (in a federally declared disaster area) resulted in a loss of $2,600. Mr. White recovered only $1,600 from his insurance company and deducted a casualty loss of $500 ($1,000 unreimbursed loss, less $500 nondeductible on property used for personal purposes). By what amount must Mr. White reduce his basis before considering any reinvestment of the insurance proceeds in repairs on the house? $1,000 $1,600 $2,100 $2,600

$2,100. 1,600+500=2,100.

Mr. A exchanged stock and real estate that he held for investment for other real estate he intends to hold for investment. The stock at the time of the exchange had a fair market value of $30,000 and an adjusted basis to A of $27,000. A's old real estate had a fair market value of $150,000 and an adjusted basis to him of $90,000. The real estate acquired by Mr. A had a fair market value of $180,000 at the time of the exchange. What is the amount of A's recognized gain (or loss) on the exchange? $0 $3,000 $30,000 $(30,000)

$3,000. 30,000-27,000 adj. basis= 3,000.

The XYZ Partnership bought a business for $1,000,000 in January. Included in the purchase price were business assets as follows: certificate of deposit of $100,000, accounts receivable of $200,000, and inventory of $300,000. Also purchased but not separately valued were an office building, land, and going concern value. The real estate tax assessment was $300,000, and the buyer estimated the building was worth twice the land value. What values would you assign to the building, land, and going concern? Building Land Going Concern $200,000 $100,000 $100,000 $100,000 $200,000 $100,000 $200,000 $200,000 $0 $250,000 $150,000 $0

$200,000 $100,000 $100,000. 1,000,000-600,000= 400,000 left to be split among the rest. The building and the land are split between the RE tax assessment for $300,000. The building is twice as much as the land, so building is 200,000, and 100,000 for the land. The remaining is for the going concern, 100,000.

Mike purchased a building lot in Year 1 for $25,000 and constructed his primary residence there for an additional $175,000. In Year 4, Mike moved to a different city but kept the house he constructed in Year 1 and converted it to a rental property. On the date Mike made this change, the fair market value of the converted property was $225,000. For depreciation purposes, what is Mike's basis in this rental property? $150,000 $175,000 $200,000 $225,000

$200,000. 25,000+175,000= 200,000 for adj. basis.

P&L Partnership purchased a building for commercial purposes on July 1 for $200,000. Carpeting was installed at a cost of $8,000 on August 30. Furniture was purchased at a cost of $10,000 on September 1. Legal fees of $700 and recording fees of $100 were incurred at the time the building was purchased. What is the cost basis of the building? $218,800 $200,800 $200,000 $218,000

$200,800. 200,000+700+100= 200,800.

Michael wants to convert his personal residence to a rental property. He paid $300,000 for the property, and the allocation of value for tax assessment has always been 2/3 building and 1/3 land. Over the years, he incurred $50,000 in permanent improvements to the house. He claimed a (federally declared disaster) casualty loss deduction of $5,000 in 1 year. On the date of conversion, the fair market value of the property was $600,000. What is the basis for depreciation of this rental? $600,000 $345,000 $245,000 $400,000

$245,000. (2/3)x300,000+50,000-5,000= 245,000

A tornado destroyed a forklift Ben purchased for $16,000 and for which he had deducted $12,000 of depreciation expense. Ben received an insurance payment of $18,000, of which he spent $15,000 for a new forklift. As a result, what is the minimum amount of ordinary income Ben can report on his return? $0 $3,000 $12,000 $14,000

$3,000. Ben received insurance proceeds of $18,000 on destroyed property with an adjusted basis of $4,000 and thereby realized a gain of $14,000: $12,000 ordinary and $2,000 Sec. 1231. Since the replacement property was similar, under Sec. 1033(a)(2), Ben may elect to recognize the gain only to the extent that the amount realized ($18,000) exceeds the cost of the replacement property ($15,000), or $3,000. The ordinary income must be recognized first.

The Andee Partnership traded its farm land with an adjusted basis of $10,000 for barren land with a fair market value of $15,000. Andee also received $3,500 cash on the trade. What is the gain, if any, on this trade? $0 $3,500 $5,000 $1,500

$3,500. Boot received is lesser than the realized gain of 8,500(15,000+3,500-10,000)

Charlie Croker exchanged real estate held for investment that had an adjusted basis of $8,000 for other real estate that he will hold for investment. The property given up was subject to a $3,000 mortgage. The real estate he received had a fair market value of $10,000. Charlie also received $1,000 in cash from which he paid $500 in exchange expenses. He realized a gain on the exchange. How much of the gain is taxable? $5,500 $4,000 $6,000 $3,500

$3,500. Boot received is the lesser, so it is used; 1,000 cash+3,000 liability relief-500 exchange basis= 3,500. Gain on exchange 10,000+1,000+3,000-8,000-500= 5,000.

Sally's business office was condemned to make way for an expanded highway on May 1, 2021. Sally's adjusted basis in her building was $20,000 ($80,000 original cost less $60,000 in depreciation). Her proceeds from condemnation were $220,000. Sally replaced her office on November 10, 2021, at a cost of $185,000. Sally must recognize a gain of $200,000 $0 $35,000 $60,000

$35,000. Sally's gain on the involuntary conversion is the $220,000 proceeds received less the cost of the replacement property of $185,000 for a gain of $35,000.

Nare, an accrual-basis taxpayer, owns a building that was rented to Mott under a 10-year lease expiring August 31, Year 4. On January 2, Year 1, Mott paid $30,000 as consideration for canceling the lease. On November 1, Year 1, Nare leased the building to Pine under a 5-year lease. Pine paid Nare $10,000 rent for the 2 months of November and December and an additional $5,000 for the last month's rent. What amount of rental income should Nare report in its Year 1 income tax return? $45,000 $10,000 $40,000 $15,000

$45,000.

In the current year, Jerry signed a 5-year lease to rent space to the MacBee restaurant. That year, MacBee paid Jerry $24,000 for the first year's rent and $24,000 for the last year's rent. Jerry reports his income using the accrual method of accounting. How much of the $48,000 is included in Jerry's current-year income? $120,000 $0 $24,000 $48,000

$48,000.

The Post and Rail Partnership traded a piece of farm land with an adjusted basis of $4,000 for a farm tractor that has a fair market value of $9,000 and an adjusted basis of $8,000. What is the recognized gain or loss? $1,000 $5,000 $4,000 None; is is a like-kind exchange.

$5,000.

The Post and Rail Partnership traded a piece of farm land with an adjusted basis of $4,000 for a farm tractor that has a fair market value of $9,000 and an adjusted basis of $8,000. What is the recognized gain or loss? $5,000 $4,000 $1,000 None; it is a like-kind exchange.

$5,000. 9,000-4,000= 5,000.

Two transactions for a sole proprietorship were made during the current year. These were the only sales or exchanges of capital assets or Sec. 1231 assets (there were no unrecaptured Sec. 1231 losses from the previous year). A machine used in the business was sold for $400,000. It cost $330,000 when purchased 3 years ago, and its adjusted tax basis when sold was $210,000. Depreciation had been recorded on an accelerated basis; straight-line depreciation would have been $99,000. A $500,000 insurance recovery on a small warehouse destroyed by fire was received. It was used in the business and depreciated using the straight-line method. Its adjusted tax basis at the date of the fire was $524,000. A new warehouse was rebuilt at a cost of $600,000. $524,000 $600,000 $624,000 $576,000

$600,000. The realized loss was fully recognized, so the basis of the new warehouse is its cost of $600,000.

Larry purchased an office building and land on February 1 of the current year for $1,000,000. No liabilities were assumed. The assessed value of the assets for real estate purposes at the time of the purchase were as follows: Assessed Value Land $300,000 Building 500,000 What is the basis of the building? $625,000 $700,000 $600,000 $500,000

$625,000. 1,000,000x(500,000/800,000)= 625,000.

Sylvester owns farm machinery that has a fair market value of $157,000 and an adjusted basis of $90,000. The farm machinery is subject to a liability of $47,000. Dorene would like to purchase Sylvester's farm machinery and makes the following offer: Cash -- $15,000 Assumption of Sylvester's liability Farmland owned by Dorene having a fair market value of $95,000; the land is not encumbered by any liabilities What is the amount of Sylvester's recognized gain if he accepts Dorene's offer? $15,000 $20,000 $67,000 $62,000

$67,000. 157,000-90,000= 67,000.

Gwen owned a duplex and lived in one half. The other half was rental property. The cost of the property was $80,000, of which $70,000 was allocated to the building and $10,000 to the land. In the current year, the property was condemned by the city. Up to that time, she had allowed (allowable) depreciation of $23,000. The city paid $70,000. She bought another duplex for $85,000. Gwen lived in one half, and the other half is a rental. What is the basis of the replacement property? $62,000 $67,000 $72,000 $85,000

$67,000. The basis of the rental building before the sale was $17,000 ($40,000 purchase price - $23,000 depreciation taken). That portion of the building was sold for $35,000, leaving a gain of $18,000. The gain is deferred, leaving a basis of $24,500 ($42,500 - $18,000). The personal-use building has a $5,000 loss ($35,000 selling price - $40,000 basis). That loss is a nondeductible personal loss. The replacement portion has a basis of $42,500, the purchase price. The total basis is $67,000 ($24,500 rental portion + $42,500 personal-use portion).

Taxpayer J purchased a business building with a fair market value of $60,000 and a business auto with a fair market value of $10,000. Both were acquired in a bargain purchase for a total cost of $49,000. What is the basis of the auto? $5,000 $49,000 $7,000 $10,000

$7,000. [10,000/70,000(60,000+10,000)]x49,000= 7,000.

Sarah owns and operates a retail sporting goods business as a sole proprietor. Her store is located on the ground floor of a two-story building that she owns. Based on the following information, compute her net self-employment income (for SE tax purposes) for the year. Gross profit from sporting goods store $100,000 Rental income from upper level (45%) of building 20,000 Building depreciation expense 10,000 Utilities for ground floor (tenant pays own utilities) 4,500 Depreciation on vehicles used in business 3,000 Gain on sale of van used 100% in business 2,000 Contributions to her Keogh retirement plan 5,500 Sarah's health insurance premiums 4,000 Mortgage interest on building 10,000 Other expenses of running her sporting goods business 11,500 $73,500 $64,500 $70,000 $67,200

$70,000. 100,000-5,500(10,000 depr.x55%) -4,500-3,000-5,500(10,000 mortg. int.x55%)-11,500= 70,000.

Elder Company wants to acquire commercial property located on Main Street. Ms. Cheung, one of Elder's customers, owns the property and uses it in her business. Elder offers to give Ms. Cheung the land it owns next to its business and inventory items worth $70,000 in exchange for her Main Street property. Ms. Cheung's basis in her Main Street property is $160,000, and its fair market value is $350,000. The land owned by Elder has an adjusted basis to Elder of $90,000 and a fair market value of $280,000. Ms. Cheung will hold the land she receives from Elder for investment purposes. What is the amount of Ms. Cheung's recognized gain if she accepts the offer? $70,000 $190,000 $0 $120,000

$70,000. Boot received is 70,000. Gain of 190,000(280,000+70,000-160,000).

Bernard owns a restaurant building that has a fair market value of $175,000 and an adjusted basis of $100,000. The building is subject to a liability of $40,000. Smiley would like to purchase Bernard's restaurant building and makes the following offer: Cash -- $50,000 Assumption of Bernard's liability Restaurant building owned by Smiley having a fair market value of $85,000; the building is not encumbered by any liabilities What is the amount of Bernard's recognized gain if he accepts Smiley's offer? $90,000 $75,000 $50,000 $35,000

$75,000. Boot is $90,000(50,000+40,000). Gain on sale 75,000(170,000-100,000).

Arthur is a proprietor of Arthur's Pizza Emporium. He bought a commercial building several years ago. He made a down payment of $20,000 in cash and assumed a mortgage for $100,000. After he paid off the mortgage, Arthur later sold the building for $180,000. Straight-line depreciation taken up to the date of sale was $18,000. What is the total gain on the sale? $78,000 $80,000 $60,000 $160,000

$78,000. 180,000-102,000(20,000+100,000-18,000)= 78,000.

During the current year, Mr. G had business property that had an adjusted basis of $78,000, condemned by the state. The state paid G $93,000 for the property. Mr. G immediately purchased similar new property for $87,000. G properly reported a $6,000 gain on his current-year federal income tax return. What is the amount of Mr. G's basis in the new property? $72,000 $78,000 $87,000 $93,000

$78,000. 93,000-78,000= 15,000 gain, but only required to realize 6,000(93,000-87,000). 15,000-6,000= 9,000 gain not recognized. 87,000-9,000= 78,000.

Bob purchased a building and land to use in his business for a price of $1,000,000. The land was valued at $300,000 (included in the price). He then incurred $90,000 to replace the roof of the building. The city replaced the sewage lines to his business and assessed Bob $20,000. Bob had been slow in getting insurance coverage on the real property and incurred a small fire loss of $10,000, which he plans to deduct on his business tax return. What is Bob's basis for depreciation after deducting the loss? $1,100,000 $810,000 $800,000 $720,000

$800,000. 700,000(1,000,000-300,000)+90,000+20,000-10,000= 800,000.

Nelson, Inc., owned a manufacturing building with a fair market value of $95,000 and an adjusted basis of $75,000. Nelson, Inc., entered into an agreement to exchange the manufacturing building for a warehouse with an adjusted basis of $80,000 and a fair market value of $100,000 with Roberts Corporation. In addition, Nelson, Inc., would pay Roberts Corporation $5,000 in cash. Nelson, Inc., also incurred and paid attorney and deed preparation fees of $5,000 on this exchange. What is Nelson's basis in the warehouse it received in this like-kind exchange? $85,000 $100,000 $95,000 $110,000

$85,000. $85,000 ($75,000 adjusted basis of property given + $5,000 boot given + $5,000 legal fees incurred).

Joe traded an apartment building with an adjusted basis of $100,000 and received a new apartment building with a fair market value of $90,000 and $15,000 cash. What is the basis of Joe's new apartment building? $85,000 $105,000 $90,000 $100,000

$90,000.

Which of the following expenses is deductible as compensation? -A loan or an advance for services for services actually preformed when repayment is not expected. -Lump-sum payments for sick pay that are compensated by insurance. -Wages paid to employees for construction a new building to be used in the business. -Payment for an employee to take classes required for the job.

-A loan or an advance for services for services actually preformed when repayment is not expected.

On September 30, Year 1, Mr. C purchased investment land. On April 15, Year 2, C traded his land for some other investment land in a nontaxable exchange. On October 5, Year 2, C sold the land received in the exchange for a gain. C's gain will be treated as -Part nontaxable, part long-term capital gain. -Part short-term capital gain, part long-term capital gain. -A short-term capital gain. -A long-term capital gain.

-A long-term capital gain.

Which of the following classes of property is (are) excepted from the uniform capitalization rules? -Qualified creative expenses incurred as a former self-employed writer, photographer, or artist that are otherwise self deductible. -Intangible drilling and development costs of oil and gas or geothermal wells. -Timber and certain ornamental trees. -All of the answers are correct.

-All of the answers are correct.

Which of the following transactions qualifies as a like-kind exchange? -The exchange of a copyright on a novel for a copyright on a song. -An exchange of the "goodwill or going concern value" of a business for the "goodwill or going concern value" of another business. -An exchange of land improved with an apartment house for land improved with a store building. -An exchange of real property used predominantly in the United States for real property used predominantly outside the United States.

-An exchange of land improved with an apartment house for land improved with a store building.

In June of Year 1, you paid $82,600 for real property to be used as a manufacturing plant. You allocated the cost to land as $10,325 and to building as $72,275. From Year 1 to Year 4, you incurred the following expenses related to this property: Building remodeling before placed in service $20,000 Depreciation expense 14,526 Casualty loss not covered by insurance 5,000 Fire damage restoration 5,500 What is the adjusted basis of the building and land as of January 1, Year 5? -Building, $78,249; land, $10,325 -Building, $77,749; land $10,825 -Building, $88,249; land $10,825 -Building, $92,275; land $20,825

-Building, $78,249; land, $10,325. 72,275+20,000+5,500= 97,775-14,526-5000= 78,249. Basis of the land remains unchanged.

Mr. A constructed a factory building costing $1,500,000 for use in his business. The construction started on January 2 of Year 1 and was completed and placed in service on July 1 of Year 2. During the construction period, Mr. A incurred and paid real property taxes of $10,000 attributable to the construction. Mr. A must -Amortize the $10,000 over a 10-year period starting in Year 2. -Capitalize the $10,000 as part of the land cost. -Amortize the $10,000 over a 10-year period starting in Year 1. -Capitalize the $10,000 as part of the building cost; recover the costs by claiming MACRS depr. on the building.

-Capitalize the $10,000 as part of the building cost; recover the costs by claiming MACRS depr. on the building.

Amounts paid or incurred to demolish a structure are -Deductible as a casualty loss. -Capitalized and amortized over a 180-month period. -Treated as a reduction of the basis of the structure. -Capitalized and added to the basis of the land where the demolished structure was located.

-Capitalized and added to the basis of the land where the demolished structure was located.

Which of the following items does NOT decrease the basis of property? -Capitalized value of a redeemable ground rent. -Rebate from manufacturer or seller. -Section 179 deduction. -Amount of insurance received due to a casualty and any deductible loss not covered by insurance.

-Capitalized value of a redeemable ground rent.

You are a calendar-year taxpayer. You were notified by the city council on December 1, Year 1, of its intention to acquire your real property used in your business by negotiation or by condemnation. On June 1, Year 2, when the property had an adjusted basis of $40,000 to you, the city converted the property and paid you $50,000. When does your replacement period end? -December 31, Year 5 -June 1, Year 5 -June 1, Year 4 -December 1, Year 4

-December 31, Year 5

Which of the following does NOT constitute an involuntary conversion? -Factory building destroyed by fire. -Diamond necklace mislaid or lost by the owner. -Condemnation of land held for investment by a state highway department. -Embezzlement of funds by a teller working in a bank.

-Diamond necklace mislaid or lost by the owner.

Which of the following items does NOT increase the basis of property? -Freight and installation costs. -Legal fees to perfect the title. -Zoning costs. -Missed depreciation deductions in tax years barred by the statute of limitations.

-Missed depreciation deductions in tax years barred by the statute of limitations.

The uniform capitalization method must be used by 1. Manufacturers of tangible personal property with $5 million in average annual gross receipts for the 3 preceding years 2. Retailers of personal property with $5 million in average annual gross receipts for the 3 preceding years -Both 1 and 2. -2 only. -Neither 1 nor 2. -1 only.

-Neither 1 nor 2.

Which of the following items is NOT a reduction to the basis of an asset? -Amount received for granting an easement on property. -Casualty loss. -Personal property tax. -Rehabilitated Building Credit.

-Personal property tax.

The uniform capitalization rules will apply in all of the following situations EXCEPT -Produce real or tangible personal property for sale to customers and average annual gross receipts exceed $26 million. -Acquire property for resale, and average annual gross receipts exceed $26 million. -Produce real or tangible personal property for use in a business or activity carried on for profit and average annual gross receipts exceed $26 million. -Produce property under a long-term contract other than a home construction.

-Produce property under a long-term contract other than a home construction.

Which of the following is NOT subject to the uniform capitalization rules? -Personal property acquired for resale if an individual has average gross receipts of more than $26 million. -Real property or tangible personal property that an individual produces for sale to customers. -Property produced under a long-term contract. -Real property or tangible personal property that an individual produces for use in a trade or business.

-Property produced under a long-term contract.

Generally, you must capitalize rental expenses if any of the following apply EXCEPT -Acquire property for resale if the average annual gross receipts are greater than $26 million -Rent increases during the lease. -Produce real or tangible personal property for use in a trade or business or activity engaged in for profit if average annual gross receipts are greater than $26 million. -Produce real or tangible personal property for sale to customers if average annual gross receipts are greater than $26 million

-Rent increases during the lease.

In a "like-kind" exchange of an investment asset for a similar asset that will also be held as an investment, no taxable gain or loss will be recognized on the transaction if both assets consist of -Partnership interests. -Convertible debentures. -Rental real estate located in different states. -Convertible preferred stock.

-Rental real estate located in different states.

Under the updated capitalization and repair rules, amounts paid for which of the following activities generally are NOT required to be capitalized unless an election is made to treat them as capital expenditures? -Replacing a major component or substantial structural part of a unit of property. -Repair and maintenance that does not improve a unit of tangible property. -Materially enlarging a unit of property. -Adapting a unit of a property to a new or different use.

-Repair and maintenance that does not improve a unit of tangible property.

All of the following items will increase the basis in an asset EXCEPT -Capital improvements -Section 179 deduction. -Zoning cost. -Installation costs.

-Section 179 deduction.

Which of the following activities would subject a taxpayer to the uniform capitalization rules? -Taxpayer produces real or tangible property for non-business use. -Taxpayer acquires property not for resale. -Taxpayer produces real or tangible personal property for sale to customers and average annual gross receipts exceed $26 million. -None of the answers are correct.

-Taxpayer produces real or tangible personal property for sale to customers and average annual gross receipts exceed $26 million.

All of the following items decrease the basis of property EXCEPT -Casualty or theft loss deductions and insurance reimbursements. -The cost of defending and perfecting a title. -Section 179 deduction. -The exclusion from income of subsidies for energy conservation measures

-The cost of defending and perfecting a title.

All of the following items decrease the basis of property EXCEPT -Casualty or theft loss deductions and insurance reimbursements. -The cost of defending and perfecting a title. -Section 179 deduction. -The exclusion from income of subsidies for energy conservation measures.

-The cost of defending and perfecting a title.

Which of the following items does NOT increase the basis of property? -Legal fees for defending title to the property. -The cost of extending utility service lines to the property. -Assessments for items that increase the value of the property. -The cost of the painting the interior of the building.

-The cost of the painting the interior of the building.

The basis of property acquired by purchase includes all of the following EXCEPT -Unstated interest on any time-payment plan. -Sales tax charged on the purchase. -Freight, installation, and testing charges. -Amount paid in notes to the seller.

-Unstated interest on any time-payment plan.

Which of the following does NOT reduce the basis of property? -Credit for qualified electric vehicles. -Depreciation. -Zoning costs. -Section 179 deductions.

Zoning costs.