Question

On February 1, Karin purchases real estate for $375,000. The annual property taxes of $5,040 are payable on
December 31. Realizing that she will pay the property taxes for the entire year, Karin remits $374,580 to the seller at
closing. Karin’s adjusted basis for the real estate is:

a. $374,580

b.

$375,000

c.

$375,420

d.

$379,620

Nat is a salesman for a real estate developer. His employer permits him to purchase a lot for $75,000. The
employer’s adjusted basis for the lot is $45,000, and its normal selling price is $90,000.

What is Nat’s recognized gain and his basis for the lot?

a. gain $0; basis $75,000

b. gain $0; basis $90,000

c. gain $15,000; basis $75,000

d. gain $15,000; basis $90,000

In 2014, Harold purchased a classic car that he planned to restore for $12,000. However, Harold is too busy to work
on the car and he gives it to his daughter Julia in 2018. At this time, the fair market value of the car has declined to
$10,000. Harold paid no gift tax on the transaction. Julia completes some of the restoration herself with out-of-pocket
costs of $5,000. She later sells the car for $30,000. What is Julia’s recognized gain or loss on the sale of the car?

a. $0

b. $13,000

c. $15,000

d. $18,000

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4,
2018, the date of the decedent’s death. The executor distributes the land to Kelly on November 12, 2018, at which
time the fair market value is $49,000. The fair market value on February 4, 2019, is $45,000. In filing the estate tax
return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2019, for $48,000. What is her
recognized gain or loss?

a. ($1,000)

b. ($2,000)

c. ($47,000)

d. $1,000

Answer 1