Multiple Choice Questions
1. A warehouse with an adjusted basis of $250,000 was destroyed by a tornado on April 15, 2014. On June 15, 2014, the insurance company paid the owner $395,000. The owner reinvested $470,000 in a new warehouse. What is the basis of the new warehouse if non-recognition of gain from an involuntary conversion is elected?
a. $105,000.
b. $250,000.
c. $325,000.
d. $395,000
2. Kyla owns a convenience store with an adjusted basis of $215,000 that was destroyed by a flood on August 15, 2014. Kyla received a check for $275,000 from her insurance company on January 10, 2015, compensating her for the damage to her store. What is the latest date on which Kyla can buy replacement property to avoid recognition of any realized gain?
a. August 15, 2016.
b. December 31, 2016.
c. January 10, 2017.
d. December 31, 2018.
3. On June 15, 2014, Allen sold land held for investment to Stan for $50,000 and an installment note of $250,000 payable in five equal annual installments beginning on June 15, 2015, plus interest at 10%. Allen’s basis in the land is $150,000. What amount of gain is recognized in 2014 under the installment method?
a. $0.
b. $25,000.
c. $50,000.
d. $150,000.
4. On July 1, 2014, Andrea sold land held for investment to Taylor. Andrea’s land had a $300,000 basis and was subject to a $150,000 mortgage. Under the contractual agreement, Taylor will pay Andrea $85,000 on the date of the sale, will assume the mortgage, and will give Andrea a note for $375,000 (plus interest at the federal rate) due the following year. What is the contract price in the year of sale?
a. $460,000.
b. $525,000.
c. $610,000.
d. $760,000.
5. Which of the following statements is correct with regard to installment sales?
a. The contract price is generally the amount of cash the seller will receive.
b. Sales by a taxpayer who is a dealer in the item sold are not eligible for installment sale treatment.
c. The installment method cannot be used to report gain from the sale of stock or securities that are traded on an established securities market.
d. All of the above are correct.
6. A taxpayer who sells her personal residence in 2014 may exclude some or all of the gain on the sale if the residence was owned and lived in for
a. At least four years before the sale date.
b. Any two years of a five-year period before the sale.
c. Any of the last four years of an eight-year period before the sale.
d. At least one year prior to the sale date.
7. Marcus purchased Vinnie and Marie’s personal residence for $225,000 cash and the assumption of their $100,000 mortgage. Vinnie and Marie bought the house six years ago for $275,000 and have used it as a primary residence. What amount of gain should Vinnie and Marie recognize on the sale of their personal residence?
a. $0.
b. $50,000.
c. $100,000.
d. $225,000.
8. Daniel, who is single, purchased a house on May 15, 1991, for $115,000. During the years he owned the house, he installed a swimming pool at a cost of $24,000 and replaced the driveway at a cost of $12,000. On April 28, 2014, Daniel sold the house for $470,000. He paid a realtor commission of $28,000 and legal fees of $1,000 connected with the sale of the house. What is Daniel’s recognized gain on the sale of the house?
a. $0.
b. $ 40,000.
c. $290,000.
d. $319,000.
9. All of the following relationships are considered related parties except
a. A corporation and a taxpayer whose spouse owns 80% of the corporation’s stock.
b. A trust and a taxpayer who is the grantor of the trust.
c. A corporation and a taxpayer who owns 20% of the corporation’s stock.
d. A partnership and a taxpayer who is a two-thirds partner.
10. On June 1, 2014, Nigel sells land (basis $55,000) to his son Ted for $40,000, the land’s fair market value on the date of the sale. On September 21, 2014, Ted sells the land to an unrelated party. Which of the following statements is correct?
a. If Ted sells the land for $35,000, he has a $20,000 recognized loss on the sale.
b. If Ted sells the land for $65,000, he has a $25,000 recognized gain on the sale.
c. If Ted sells the land for $45,000, he has a $5,000 recognized gain on the sale.
d. If Ted sells the land for $57,000, he has a $2,000 recognized gain on the sale.
11. Bryce owns 200 shares of Basic Company stock that he purchased for $8,000 three years ago. On December 28, 2014, Bryce sold 100 shares of the stock for $2,500. On January 3, 2015, Bryce repurchased 50 shares for $1,100. How much of the loss can Bryce deduct in 2014?
a. $0.
b. $ 750.
c. $4,400.
d. $5,500.