$1.$ Critical Thinking

Isabelle invests in land, and Grace invests in taxable bonds. The land appreciates by $$8,000$ each year, and the bonds earn interest of $$8,000$ each year. After holding the land and bonds for five years, Isabelle and Grace sell them. There is a $$40,000$ realized gain on the sale of the land and no realized gain or loss on the sale of the bonds. Are the tax consequences to Isabelle and Grace the same for each of the five years? Explain.

$2.$ If a taxpayer sells property for cash, the amount realized consists of the net proceeds from the sale. For each of the following, indicate the effect on the amount realized if:

a$.$ The property is sold on credit.

b$.$ A mortgage on the property is assumed by the buyer.

c$.$ A mortgage on the property is assumed by the seller.

d$.$ The buyer acquires the property subject to a mortgage of the seller.

e$.$ Stock that has a basis to the purchaser of $$6,000$ and a fair market value of $$10,000$ is received by the seller as part of the consideration.

$3.$ Decision Making

Planning

Taylor is negotiating to buy some land. Under the first option, Taylor will give Ella $$150,000$ and assume her mortgage on the land for $$100,000.$ Under the second option, Taylor will give Ella $$250,000$ and she will pay off the mortgage immediately. Taylor wants his basis for the land to be as high as possible. Given this objective, which option should Taylor select? Explain.

$4.$ Auralia owns stock in Orange Corporation and Blue Corporation. She receives a $$10,000$ distribution from both corporations. Information from Orange states that the $$10,000$ is a dividend. Blue states that the $$10,000$ is not a dividend. What could cause the instructions to differ as to the Federal income tax consequences?

$5.$ Thelma inherited land from Sadie on June $7,2023.$ The land appreciated in value by $100\%$ during the six months Sadie owned it$.$ The value has remained stable during the three months Thelma has owned it$,$ and she expects it to continue to do so in the near future. Although she would like to sell the land now, Thelma has decided to postpone the sale for another three months. The delay is undertaken to enable the recognized gain to qualify for long$-$term capital gain treatment. Evaluate Thelma$$s understanding of the tax law.

$6.$ Comment on the following transactions.

a$.$ Mort owns $500$ shares of Pear, Inc. stock with an adjusted basis of $$22,000.$ On July $28,2023,$ he sells $100$ shares for $$3,000.$ On August $16,2023,$ he purchases another $100$ shares for $$3,400.$ Explain why Mort$$s realized loss of $$1,400($$$3,000$ $$4,400)$ on the July $28$ sale is not recognized and his adjusted basis for the $100$ shares purchased on August $16$ is $$4,800.$

b$.$ Explain how and why your answer in part $($a$)$ would change if Mort purchased the $100$ shares on December $27,2023,$ rather than on August $16,2023.$

$7.$ Constanza, who is single, sells her current personal residence $($adjusted basis of $$165,000)$ for $$450,000.$ She has owned and lived in the house for $30$ years. Her selling expenses are $$22,500.$ What is Constanza$$s realized and recognized gain?

$8.$ Why was the transaction described as a "sale" and "leaseback" in the Estate of Maxwell. What would son's basis in the home be if the IRS had treated the transaction as a valid sale?