Part -1:
Eleanor exchanged Lakefront land held for investment for a parcel Mountaintop land. Eleanor intends to hold the Mountaintop land for investment as well. Eleanor's basis in the Lakefront property is $40,000. It is subject to a mortgage of $60,000 (which the acquirer, Fenton, assumes).
In order to obtain Eleanor's property, Fenton transferred the Mountaintop property (worth $100,000). The Mountaintop property was subject to a mortgage of $30,000. Fenton's basis in the property was $110,000. In addition, Fenton transferred stock with a fair value of $25,000 (basis of $18,000). Fenton held the Mountaintop property for business, but intends to hold the Lakefront property for investment.
Required:
a) Briefly (1 -2 sentences) explain how Eleanor and Fenton will report this exchange for federal tax purposes. List the authorities on which you rely.
For requirements b-d, make sure you provide labeled computations. If you don't do this and your answer is incorrect, or if you just show numbers that are not correct and do not provide explanatory labels, partial points cannot be awarded.
b) What is the fair market value of Eleanor's lakefront property?
c) What are the tax consequences of the exchange to Eleanor:
- Gain(loss) realized
- Gain (loss) recognized
- Basis in Mountain property
d) What are the tax consequences of the exchange to Fenton:
- Gain (loss) realized
- Gain (loss) recognized
- Basis in Lakefront property
Part -2:
Kyle, a single taxpayer in the 39.6% tax bracket engaged in the following disposition transactions during this tax year. You may assume the dispositions were made to unrelated parties unless told otherwise:
1. He sold Intel stock purchased 6 months ago for $175,000. Adjusted basis = $33,000
2. He sold Microsoft bonds purchased 2 years ago for $300,000. Adjusted basis = $325,000
3. He sold a building used in business for $3.5 million. His adjusted basis was $2 million. Accumulated Depreciation was $600,000. He purchased the asset in 2011.
4. He sold land used in business for $800,000. His adjusted basis was $400,000
5. He sold manufacturing equipment used in business for $280,000. His adjusted basis was $175,000. He originally purchased the equipment three years ago for $325,000
6. He sold an antique car for $1 million. He held the car for several years and his basis in it was $925,000.
7. He sold an heirloom painting that he inherited from his grandfather this year. His grandfather's basis in the painting was $25,000. On the date of his grandfather's death, the painting was worth $60,000. He sold it for $55,000 on 12/31.
8. He sold a piece of collectible furniture for $40,000. His grandfather gifted the furniture to Kyle at 5 years ago. At the time of the gift, the furniture was worth $20,000 and the grandfather's basis was $45,000.
9. He sold his shares of stock in his family's closely held corporation for $440,000. His basis in the stock was $30,000 and it was acquired many years ago. Kyle is an employee of the corporation.
10. He exchanged land held for business for another parcel of land to be held for investment. His basis in old land was $50,000 and he acquired it 8 months prior to the exchange. At the time of the exchange, his land was worth $250,000 and subject to a mortgage of $75,000. The other party assumed the mortgage.
Required: Determine the tax consequences (including character) of the transactions described above. Create a grid analyzing income categories (like those created in the lectures and homework) and provide a key to each transaction and explanations below the grid.