•Determine basis of property acquired by purchase, gift, and inheritance, as well as property converted from personal use to business use.
•Determine basis for AMT.
1,
You need to know the basis of property to complete several calculations. Which is NOT one of them?
Gain
wrong XX Depreciation
Loss
Sale price
2,
Norm purchased his neighbor's used computer for his home-based business. The neighbor bought the computer for $1,800 two years ago for his home-based business and had completely depreciated it using the Section 179 expense deduction. Norm paid $300 for the computer, which was a good price because the FMV was $800. What is Norm's basis in the computer?
$0
XX $300
$800
$1,800
3,
Kimber purchased her primary residence for $260,000. As part of the closing procedure, she paid $2,300 in a loan origination fee, $750 to a lawyer to review the purchase contract and other closing papers, $150 for a property survey, and $800 for title insurance. She also gave the real estate agent a $75 gift basket in appreciation for his hard work. What is Kimber's basis in the residence?
$260,950
$261,700
XX $264,000
$264,075
4,
What is the basis for depreciation of property received by gift, assuming the donee never held the property for personal use?
The donor's adjusted basis, including gift tax paid, on the date of the gift.
The higher of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
wrong XX The lower of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
The fair market value of the property as of the date of the gift.
5,
What is the basis of gifted property to calculate loss if the FMV of the property on the date of the gift is less than the donor's adjusted basis?
XX The FMV of the property on the date of the gift.
The higher of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
The lower of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
The donor’s purchase price.
6,
Generally, what is the basis of property inherited from a decedent?
The adjusted basis of the decedent on the date of death or the alternative valuation date.
The higher of the decedent’s adjusted basis or the FMV on the date of death or the alternative valuation date.
XX The FMV of the property on the date of death or the alternative valuation date.
The purchase price of the property.
7,
What is the basis of property converted from personal use to business use?
Purchase price.
XX Lesser of adjusted basis or FMV on date of conversion.
Greater of adjusted basis or FMV on date of conversion.
FMV to calculate depreciation and adjusted basis to calculate gain or loss.
8,
When Jim sent his daughter to college, he purchased a house near campus for $95,000. Empty lots in the area sold for approximately $10,000 at the time. After she graduated, he decided to keep the house for use as a rental. The fair market value at the time of the conversion was $160,000 and the price of the land had risen to $20,000. What is the basis for depreciation of the house?
XX $85,000
$95,000
$105,000
$140,000
9,
Which of these would be considered a repair, not an improvement?
Adding a deck to the back yard.
Installing carpet.
Installing a security system.
XX Repainting the exterior of the house
10,
Which of these would NOT increase basis?
Zoning costs to bring a property into compliance with government regulations.
Assessments for local improvements, such as sewers and sidewalks, and the cost of extending utility service lines to the property.
XX Casualty restoration bringing the property to pre-casualty condition.
All of the above.
11,
Adam bought 100 shares of Blue Sun, Inc. for $50 per share. The transaction fee was $200. In 2009, the company paid a nontaxable dividend of $2 per share, which he reinvested in stock. When he sold the stock, he held 110 shares of Blue Sun. What is his basis in each share?
$47.27
$49.09
$50
wrong XX $52
12,
Which of these would NOT decrease basis?
Cancelled debt.
Depreciation.
Nonbusiness Energy Credit.
XX Casualty restoration beyond bringing the property to pre-casualty condition.
13,
Which statement is true about the treatment of Incentive Stock Options?
Under the regular tax system, the exercise of an incentive stock option is generally tax-free and the client’s basis in the stock is their purchase price.
Under AMT, the client has a taxable event when they exercise the option. The excess of the FMV of the stock over the exercise price is taxable income for AMT.
The client's basis for AMT is the cost plus the difference between cost and FMV.
XX All of the above.
14,
Which of the following methods are determined differently for AMT and the regular tax system currently?
200 declining balance (DB) method under MACRS (3-, 5-, 7-, and 10-year properties).
Section 179 expensing and bonus depreciation.
wrong XX 5- and 20-year property that uses the 150 DB method under MACRS.
Real property that uses the straight-line method.
15,
Chad bought his residence for $175,000 in the summer of 2007. At closing, he also paid $500 for title insurance and $215 to record the deed. In the spring of 2009, Chad paid $1,625 to remodel the master bath. In the late summer of 2009, he spent $150 for supplies to paint the first floor rooms. In the fall of 2009, Chad replaced the furnace with a qualified energy efficient furnace. He spent $1,500 for the new furnace and claimed a $450 credit for it on his 2009 tax return. What is Chad's adjusted basis in the house?
$177,890
$178,125
XX $178,390
$179,440
16,
Catherine bought 20 shares of ABC Company in 1995. She paid $10 a share plus a transaction commission of $25 for a total of $225. Catherine reinvests the taxable dividends to purchase new shares. Over the years, she has reinvested and paid taxes on $10,000 in dividends. The reinvested dividends purchased 600 shares. What is Catherine's total basis in the ABC shares?
$10,200
$10,225
wrong XX $225
$10,000
Additional Questions:
1,
You need to know the basis of property to complete several calculations. Which is NOT one of them?
Gain
Depreciation
Loss
>>> Sale price
4,
What is the basis for depreciation of property received by gift, assuming the donee never held the property for personal use?
>>> The donor's adjusted basis, including gift tax paid, on the date of the gift.
The higher of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
The lower of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
The fair market value of the property as of the date of the gift.
11,
Adam bought 100 shares of Blue Sun, Inc. for $50 per share. The transaction fee was $200. In 2009, the company paid a nontaxable dividend of $2 per share, which he reinvested in stock. When he sold the stock, he held 110 shares of Blue Sun. What is his basis in each share?
$47.27
$49.09
>>> $50
$52
14,
Which of the following methods are determined differently for AMT and the regular tax system currently?
>>> 200 declining balance (DB) method under MACRS (3-, 5-, 7-, and 10-year properties).
Section 179 expensing and bonus depreciation.
5- and 20-year property that uses the 150 DB method under MACRS.
Real property that uses the straight-line method.
16,
Catherine bought 20 shares of ABC Company in 1995. She paid $10 a share plus a transaction commission of $25 for a total of $225. Catherine reinvests the taxable dividends to purchase new shares. Over the years, she has reinvested and paid taxes on $10,000 in dividends. The reinvested dividends purchased 600 shares. What is Catherine's total basis in the ABC shares?
$10,200
>>> $10,225
$225
$10,000
Additional Questions:
What is the basis of gifted property to calculate loss if the FMV of the property on the date of the gift is less than the donor's adjusted basis?
wrong XX The FMV of the property on the date of the gift.
The higher of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
The lower of FMV of the property or the donor’s adjusted basis, including gift tax paid, on the date of the gift.
>>> The donor’s purchase price.
Elizabeth died, leaving her estate to her cousin, Mary. At the time of her death, Elizabeth owned a diamond ring that was purchased by her grandmother for $5,000. On her grandmother's death, the ring passed to Elizabeth's father. At the time of her grandmother's death, the ring was worth $10,000. Her father spent $700 to have the ring remounted. It was valued at $13,000 at the time of her father's death. At the time of Elizabeth's death, the ring was worth $18,000. What is Mary's basis in the ring?
wrong XX $5,000
$10,700
$13,000
$18,000
Chad bought 100 shares of Biggie, Inc. in 2000 for $50 per share. The transaction fee was $200. In 2005, the company underwent a 2-for-1 stock split. How many shares does Chad own, and what is the basis for each share?
Chad owns 100 shares of Biggie, Inc., and his basis in each is $52.
XX Chad owns 200 shares of Biggie, Inc., and his basis in each share is $26.
Chad owns 200 shares of Biggie, Inc., and his basis in each share is $52.
Chad owns 300 shares of Biggie, Inc., and his basis in each is $17.33.
Bill purchased a computer for his business. Bill paid $2,610 for the computer plus $196 for sales tax. He paid $300 for the computer to be set up in his office. When Bill filed his tax return, his Tax Professional used Section 179 to expense the cost. What is Bill's adjusted basis in the computer?
$2,610
wrong XX $3,106
$0
XX $2,806
What information do you need to compute basis for gain or loss of property received as a gift?
wrong XX The donor's adjusted basis, including gift tax paid, on the date of the gift.
The fair market value of the property on the date of the gift.
Both A and B.
Neither A nor B.
What happens if the Tax Professional does not establish basis for an asset which is sold?
XX The IRS will assume the basis is $0 and consider all of the proceeds to be gain.
The basis will be adjusted to reflect the fair market value at the time of the sale.
Basis will be assumed to be one-half of the sale price.
None of the above.
Which of these situations would follow the general rule for basis of inherited property?
On August 15, 2010, Bob gave his brother appreciated stock. Bob's brother died on February 16, 2011, and Bob was his only heir.
Everett died on June 30, 2011. He named his brother Elliott as the beneficiary of his 401(k) plan.
XX Ronal died on October 16, 2011, leaving his estate to his sister, Sona.
None of these situations would follow the general rule for basis of inherited property.
Jeana bought appliances to install in her rental property for $1,750. In addition to the purchase price, she paid $131 sales tax. Jeana purchased the appliances using her store credit card and ended up paying $283 in finance charges on the purchase. What is Jeana's basis in the appliances?
$1,750
XX $1,881
$2,033
$2,164
Questions with wrong answer:
Question 4
What is the basis of gifted property to calculate loss if the FMV of the property on the date of the gift is less than the donor's adjusted basis?
Your answer: The donor’s purchase price.
Question 5
What is the basis of gifted property to calculate gain if the FMV of the gift on the date of the gift is less than the donor's adjusted basis?
Your answer: FMV of the property on the date of the gift
Question 15
Bill purchased a computer for his business. Bill paid $2,610 for the computer plus $196 for sales tax. He paid $300 for the computer to be set up in his office. When Bill filed his tax return, his Tax Professional used Section 179 to expense the cost. What is Bill's adjusted basis in the computer?
Your answer: $2,806
