Question

1) Charlie owns a tract of undeveloped land held as an investment that has an adjusted basis to Charlie of $145,000. If Charlie sells the land to his son, Otis, for $105,000, the fair market value of the property, which of the following is a correct statement as to Otis’ basis in the land?

a. Otis’ basis in the land is $105,000.

b. Otis’ basis in the land is $105,000 provided that Otis does not sell the land within two years after the date that the land is transferred to Otis.

c. Otis’s basis in the land is $145,000. d. None of the above is correct since this transfer is considered part gift part sale.

2) Assume that in 2018 Taxpayer makes a donation to qualified public charity of real estate held by Taxpayer for investment for five years and having a fair market value of $20,000 on the date of the contribution. Taxpayer's basis in the property is $30,000. How much loss or deduction would be allowable to or recognized by taxpayer as a result of this transaction?

a. Taxpayer would recognize a capital loss of $10,000 that may be used to offset Taxpayer’s capital gains.

b. There would be no deductible loss allowable with respect to the inherent loss in the property, but taxpayer may take a charitable deduction of $20,000 subject to the adjusted gross income percentage limitation, and provided Taxpayer itemizes deductions.

c. Taxpayer may carry over the loss until Taxpayer makes a bargain sale of other real estate to a public charity.

d. Taxpayer’s allowable charitable income tax deduction would be $30,000. Taxpayer purchased a personal residence in 2017 for $266,000.

3) The fair market value of the residence was $280,000 when it was damaged by a flood on June 10, 2018 that resulted from not turning off the bath water before leaving for vacation. The fair market value of the residence after the flood was $240,000 and insurance proceeds totaled $15,000. What is the net amount of casualty loss Taxpayer may deduct for 2018 as an itemized deduction if Taxpayer’s adjusted gross income is $120,000?

a. 0

b. $25,000

c. $24,900

d. $8,500

e. $12,900

Answer 1

Answer 1:

From the given data we need to find the correct statement.

Explaination:

During the sell of asset, the fair market value becomes the adjusted basis of the buyer.

So finally,

The correct answer is option (a). Otis’ basis in the land is $105,000.

(a). Otis’ basis in the land is $105,000.

Answer 2:

Given data,

Taxpayer for investment for five years and having a fair market value of $20,000 on the date of the contribution.

Taxpayer's basis in the property is $30,000.

Explaination:

This is capital loss due to the property is hold for 5 years.

Now the correct answer is Option (a).

(a). Taxpayer would recognize a capital loss of $10,000 that may be used to offset Taxpayer’s capital gains.

(a). Taxpayer would recognize a capital loss of $10,000 that may be used to offset Taxpayer’s capital gains.

Explaination:

This is capital loss due to the property is hold for 5 years.

Answer 3:

Given data,

Taxpayer purchased a personal residence in 2017 for $266,000.

The fair market value of the residence was $280,000

when it was damaged by a flood on June 10, 2018 that resulted from not turning off the bath water before leaving for vacation.

The fair market value of the residence after the flood was $240,000 and

Insurance proceeds totaled $15,000.

Now calculate,

What is the net amount of casualty loss Taxpayer may deduct for 2018 as an itemized deduction if Taxpayer’s adjusted gross income is $120,000?

Fmv before damage - fmv after damage - insurance proceeds - (10% of AGI upto $100,000)

= 280000-240000-15000-(10%100000)

= 25000

Option B $25000 is correct.

Option (b) $25000 is correct.