1.

d - - 1 MODULE
a - 34 TAXES:2 TRANSACTIONS
- c - - IN PROPERTY
4 a - - 5 - - 515
2 d - - 5.
161 - 9 c
30. 3.
44. c - - 7
58. c -
C - - - -
.3. c - - 17. c - - 31. d - - 45. c - - 59. c - -
MULTIPLE-CHOICE
- ANSWERS
4. b - - 18. d - - 32. a - 46. b - - , 60. b - -
5. c - - 19. d - - 33. a - - 47. b - - 61. b - -
6. b - - 20. d - - 34. b - - 48. b - - 62. a - -
7. b - - 21. b - - 35. c - - 49. d - -
8. b - - 22. c - - 36. a - - 50. a - -
9. d - - 23. d - - 37. c - - 51. b - -
10. b - - 24. c - - 38. a - - 52. a - -
11. c - - 25. a - - 39. b - - 53. b - -
12. c - - 26. b - - 40. d - - 54. a - -
13. d - - 27. b - - 41. d - - 55. d - - 1st: _/62 - %
14. b - - 28. a - - 42. b - - 56. a - - 2nd: =
~62= - %

MULTIPLE-CHOICE ANSWER EXPLANATIONS

A.I. Basis of 6. (b) The requirement is to determine Ruth's holding

Property
1. (d) The requirement is to determine Birch's tax ba-
sis for the purchased-land and building. The basis of prop-
erty acquired by purchase is a cost basis and includes not
only the cash paid and liabilities incurred, but also includes
certain settlement fees and closing costs such as abstract of
title fees, installation of utility services', legal fees (including
title search, contract, and deed fees), recording fees, surveys,
transfer taxes, owner's title insurance, and any amounts the
seller owes that the buyer agrees to pay, such as back taxes
and interest, recording or mortgage fees, charges for im-
provements or repairs, and sales commissions. .
2. (d) The requirement is to determine the basis for the
purchased land. The basis of the land consists of the cash
paid ($40,000), the purchase money mortgage ($50,000),
and the cost of the title insurance policy ($200), a total of
$90,200.
A.I.e. Acquired by Gift
3. (c) The requirement is to determine the amount of
gain recognized by Thompson resulting from the sale of
appreciated property received as a gift. A donee's basis for
appreciated property received as a gift is generally the same
as the donor's basis. Since Smith had a basis for the property
of $1,200 and Thompson sold the property for $2,500,
Thompson must recognize a gain of $1,300.
4. (b) The requirement is to determine Julie's basis for
the land received as a gift. A donee's basis for gift property
is generally the same as the donor's basis, increased by any
gift tax paid that is attributable to the property's net appre-
ciation in value. That is, the amount of gift tax that can be
added is limited to the amount that bears the same ratio as
the property's net appreciation bears to the amount of tax-
able gift. For this purpose, the amount of gift is reduced by
any portion of the $13,000 annual exclusion that is allowable
with respect to the gift. Thus, Julie's basis is $23,000 +
[$14,000 ($83,000 - 23,000) / ($83,000 - $13,000)] =
$35,000.
5. (c) The requirement is to determine Ruth's recog-
nized loss if she sells the stock received as a gift for $7,000.
Since the stock's FMV ($8,000) was less than its basis
($10,000) at date of gift, Ruth's basis for computing a loss is
the stock's FMV of $8,000 at date of gift. As a result,
Ruth's recognized loss is $8,000 - $7,000 = $1,000.
period for stock received as a gift. If property is received as
a gift, and the property's FMV on date of gift is used to de-
termine a loss, the donee's holding period begins when the
gift was received. Thus, Ruth's holding period starts in
2008.
7. (b) The requirement is to determine the basis of the
Liba stock if it is sold for $5,000. If property acquired by
gift is sold at a gain, its basis is the donor's basis ($4,000),
increased by any gift tax paid attributable to the net ap-
preciation in value of the gift ($0).
8. (b) The requirement is to determine the basis of the
Liba stock if it is sold for $2,000. If property acquired by
gift is sold at a loss, its basis is the lesser of (1) its gain basis
($4,000 above), or (2) its FMV at date of gift ($3,000).
9. (d) The requirement is to determine the amount of
reportable gain orloss if the Liba stock is sold for $3,500.
No gain or loss is recognized on the sale of property ac-
quired by gift if the basis for loss ($3,000) results in again
and the basis for gain ($4,000) results in a loss.
A.I.d. Acquired from Deeedent
10. (b) The requirement is to determine the holding
period for stock received as a bequest from the estate of a
deceased uncle. Property received from a decedent is
deemed to be held long-term regardless of the actual period
of time that the decedent or beneficiary actually held the
property and is treated as held for more than twelve m0l!ths.
11. (c) The requirement is to determine Ida's basis for
stock inherited from a decedent. The basis of property re-
ceived from a decedent is generally the property's FMV at
date of the decedent's death, or FMV on the alternate valua-
tion date (six months after death). Since the executor of
Zorri's estate elected to use the alternate valuation for estate
tax purposes, the stock's basis to Ida is its $450,000 FMV
six months after Zorn's death.
NOTE: If the stock had been distributed to Ida within six
months of Zom's death, the stock's basis would be its FMVon
date of distribution.
12. (c) The requirement is to determine Lois' basis for
gain or loss on the sale of Elin stock acquired from a dece-
dent. Since the alternate valuation was elected for Prevor's
estate, but the stock was distributed to Lois within six