Introduction to Income Taxation
Brown
Homework Set #5 (Chapter 7)
SHOW ALL WORK FOR CREDIT
1. Scott has decided to dispose of the following assets that he received as gifts.
Compute his realized and recognized gain (loss) on these disposals:
a. In 2003, he received stock with a FMV of $75,000. The donor’s adjusted
basis was $100,000. He sells the stock for $72,000 this year.
b. In 2005, he received land with a FMV of $42,000. The donor’s adjusted
basis was $50,000. He sells the land this year for $45,000.
2. Miller Company owns undeveloped land (basis of $225,000) that it exchanges for
$50,000 cash and an office building (FMV $280,000) to be used in the business.
a. What is Miller’s realized gain or loss?
b. Its recognized gain or loss?
c. Its basis in the office building?
3. Dondee Realty Company owns an apartment building that has an adjusted basis
of $740,000, but is subject to a mortgage of $230,000. Dondee transfers the
apartment building to Broadview, Inc. and receives from Broadview $210,000 in
cash and an office building with a FMV of $1,000,000 at the time of the
exchange. Broadview assumes the $230,000 mortgage on the apartment
building
a. What is Dondee’s realized gain or loss on the apartment building?
b. What is its recognized gain or loss on the apartment building?
c. What is the basis of the newly acquired office building?
4. Thomas’s automobile, adjusted basis of $12,000, is used exclusively for business
and is damaged in an accident. The FMV before the accident is $18,000 and the
FMV after is just $950. If the insurance recovery is $16,000, what is Thomas’s
adjusted basis after the casualty? What is his casualty gain, if any?
Chapter 7 Homework Problems from Book:
Book#3 Lisa sells business property with an adjusted basis of $130,000 to her son, Alfred, for
its fair market value of $100,000.
a) What is Lisa’s realized and recognized gain or loss?
b) What is Alfred’s recognized gain or loss if he subsequently sells the property for
$138,000? For $80,000?
Continued on next page…
Book#19 Sheila sells land to Elane, her sister, for the fair market value of $40,000. Six months
later when the land is worth $45,000, Elane gives it to Jacob, her son. (No gift tax resulted.)
Shortly thereafter, Jacob sells the land for $48,000.
a) Assuming that Sheila’s adjusted basis for the land is $24,000, what are Sheila’s and
Jacob’s recognized gain or loss on the sales?
b) Assuming that Sheila’s adjusted basis for the land is $60,000, what are Sheila’s and
Jacob’s recognized gain or loss on the sales?
Book#31 Steve owns real estate (adjusted basis of $12,000 and fair market value of $15,000),
which he uses in his business. Steve sells the real estate for $15,000 to Aubry (a dealer) and then
purchases a new parcel of land for $15,000 from Joan (also a dealer). The new parcel of land
qualifies as like-kind property.
a) What are Steve’s realized and recognized gain on the sale of the land he sold to Aubry?
b) What is Steve’s basis for the land he purchased from Joan?
c) What factors would motivate Steve to sell his land to Aubry and purchase the land from
Joan rather than exchange one machine for the other?
d) Assume that the adjusted basis of Steve’s original parcel of land is $15,000 and the fair
market value of both parcels of land is $12,000. Respond to parts (a) through (c).
Book#40 Edith’s warehouse (adjusted basis of $450,000) is destroyed by a hurricane in October
2020. Edith, a calendar year taxpayer, receives insurance proceeds of $525,000 in January 2021.
Calculate Edith’s realized gain or loss, recognized gain or loss, and basis for the replacement
property if she:
a) Acquires a new warehouse for $550,000 in January 2021.
b) Acquires a new warehouse for $500,000 in January 2021.
c) Does not acquire replacement property.
