DISPOSITIONS

Problem 1

A and B own an undivided one-half interest in Blackacre. After a disagreement, they decide to partition the property into equal halves and for each to receive sole title to one of the partitioned pieces.

a. What are the federal income tax consequences that result from this transaction?

b. Suppose instead that A and B owned an undivided one-half interest in two parcels known as Blackacre and Whiteacre. After a disagreement, A conveys his interest in Blackacre to B in exchange for B's interest in Whiteacre. What are the tax consequences to A and B as a result? (Please ignore 1031.)

Problem 2

A owns property worth $100. In exchange for $10, on January 1, 2017, A grants B

an option to buy the property for $100 at any time before midnight, December 31, 2018.

a. What are the federal income tax consequences associated with this transaction assuming in the alternative that (i) the option is exercised in 2018, or (ii) the option is allowed to lapse?

b. Would it make any difference if the $10 option payment were credited

against the purchase price in the event of exercise?

c. Suppose in (a) that B sold the option to C on January 15, 2018 for $20. C

thereupon purchased the property from A for $100. What are the tax

consequences to A, B and C as a result of these transactions?

d. Would it make any difference in part (a) if the option was granted for$60

and the "striking price" was $40?