1) A buys a bond for $1,500 and it has a redemption amount of $1,000. A holds th
ID: 2478835 • Letter: 1
Question
1) A buys a bond for $1,500 and it has a redemption amount of $1,000. A holds the bond for 2 years and amortizes $200 of the premium. A exchanges the bond for $1,400 of XYZ stock. What is A’s basis in the bond at the time of the exchange? How much is A’s amount realized? How much gain or loss did A recognize on the exchange?
2) A buys 100 shares of ABC on five different occasions. The purchases were done in the following order and for the following amounts per share.
1 – 105
2- 108
4- 116
5 – 100
A sells 300 shares for $30,150. If A gave no instructions to her broker what is A’s gain or loss on the transaction? If A instructed her broker to sell her shares with the highest basis what would her gain or loss be?
3)A gives a gift of property to B. A’s basis in the property was $500,000 and its fair market value on the date of the gift was $300,000. What is B’s gain or loss on the disposition of the gift if B sells the property for $100,000? 600,000? $400,000?
4) A owns 100 shares of ABC stock with a basis of $10,000. On February 1, 2016 A sells the shares for $8,000. On February 28, 2016 A buys 100 shares of ABC stock for $7,000. What was A’s gain/loss on the February 1 sale? What is A’s basis in the shares acquired on February 28?
5) A acquires a house for $400,000 and incurs $7,500 of various closing fees. A also paid $3,000 of the sellers real estate taxes which was part of the $400,000 purchase price. While A owned the house A built a swimming pool for a cost of $32,000 but deducted $15,000 as a medical expense, A deducted $9,000 of expenses as a home office deduction of which $4,500 was for depreciation. A sells his home to B on October 1, 2016. A receives $600,000 in cash and B assumes A’s mortgage of $300,000. B will pay the entire year’s real estate tax of $12,000 in addition to the $300,000 purchase price. The broker’s commission on the sale is $30,000. B is obtaining financing and to help B, A will pay points to the lender of $10,000.What is A’s basis in the house, what is the amount realized by A on the sale and what is A’s gain or loss with respect to the house?
Explanation / Answer
For tax exempt bonds cost basis is determined cost less amount of premium amortized:
Cost $1500
Less: 200
A’s Basis = $1300
Amount realized $1400
No recognition of gain since no cash involved in transaction.
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