Pedro sells investment land on September 1, 2017. Information pertaining to the sale follows:
 

Adjusted basis	$14,000
Selling price	50,400
Selling expenses	700
Down payment	5,000
Four installment payments	8,400
Mortgage assumed by the buyer	11,800

 
Each installment payment is due on September 1 of 2018, 2019, 2020, and 2021 (ignore interest).
Determine the tax consequences in 2017, 2018, 2019, 2020, and 2021.
(Do not round intermediate calculations. Round your final answers to nearest whole dollar value.)
 

 
Explanation

Sales price			$	50,400
Basis	14,000
Selling expenses	700			14,700
Realized gain			$	35,700
Gross profit %				92.48705	%
Gross profit/Contract price	($38,600	)

 

September 1, 2017	$5,000 × 92.48705% =	$4,624	gain recognized
September 1, 2018	$8,400 × 92.48705% =	$7,769
September 1, 2019	$8,400 × 92.48705% =	$7,769
September 1, 2020	$8,400 × 92.48705% =	$7,769
September 1, 2021	$8,400 × 92.48705% =	$7,769
		$35,700

   
Kim owns equipment that is used exclusively in her business.
The equipment has an adjusted basis of $8,950 (FMV $5,225).
Kim transfers the equipment and $2,150 cash to David for a computer
(also used for business purposes) that has a FMV of $7,375.
 
What is Kim’s recognized gain or loss on the exchange?
What is Kim’s adjusted basis in the computer?
 

 
Explanation
Equipment – treated as a sale because they are not like-kind assets.
 
a.

Sale price – FMV of computer	$	7,375
Basis: $8,950 + $2,150 cash		(11,100	)
Loss on the sale	$	3,725

b.
Basis is the “cost” of the computer.
$5,225 FMV of equipment + $2,150 cash = $7,375
   
Virginia is an accountant for a global CPA firm. She is being temporarily transferred from the Raleigh, North Carolina, office to Tokyo.
She will leave Raleigh on October 7, 2017, and will be out of the country for four years.
She sells her personal residence on September 30, 2017, for $236,250 (her adjusted basis is $205,000).
Upon her return to the United States in 2021, she purchases a new residence in Los Angeles for $222,500,
where she will continue working for the same firm.
(If no gain or loss is recognized, select "No gain/loss".)
 
What are Virginia’s realized and recognized gain or loss?
What is Virginia’s basis in the new residence?
 

 
Explanation
Realized gain $236,250 – $205,000 = $31,250.
Recognized gain $0 §121 exclusion.
Cost $222,500
   
Reid’s personal residence is condemned on September 12, 2017, as part of a plan to add two lanes to the existing highway.
His adjusted basis is $260,000. He receives condemnation proceeds of $299,500 on September 30, 2017.
He purchases another personal residence for $282,500 on October 15, 2017. What are Reid’s realized and recognized gain or loss?
(If no gain or loss is recognized, select "No gain/loss".)
 

 
Explanation

	$	299,500	Condemnation Proceeds
		260,000	Adjusted basis
	$	39,500	Realized gain

 
Replacement for $282,500 would normally result in a $17,000 gain recognized (proceeds in excess of replacement cost).
However, since this was a personal residence, the $17,000 gain is not recognized due to the exclusion of gain for personal
residences (IRC §121).
   
On January 1, 2017, Myron sells stock that has a $47,300 FMV on the date of the sale (basis $85,550) to his son Vernon.
On October 21, 2017, Vernon sells the stock to an unrelated party. In each of the following,
determine the tax consequences of these transactions to Myron and Vernon:
(If no gain or loss is recognized, select "No gain/loss".)
 
Vernon sells the stock for $27,500.
Vernon sells the stock for $95,100.
Vernon sells the stock for $66,550.
 

 
Explanation
Myron’s $38,250 loss would be disallowed under the related party rules. Vernon would recognize a $19,800 loss.
Myron’s $38,250 loss would not be used and lost forever.
Myron’s $38,250 loss would be disallowed under the related party rules. Vernon would recognize a $9,550 gain.
The gain is actually $47,800 on the sale but it can be reduced by the $38,250 disallowed loss on the sale by Myron.
Myron’s $38,250 loss would be disallowed under the related party rules. Vernon would not recognize any gain on the sale.
The $19,250 gain is reduced by Myron’s disallowed loss. Myron’s additional loss of $19,000 would be lost forever.