# tax hmwk

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```					                                  Week 7 Assignment Solutions

Gain or Loss: Realized vs. Recognized
10-1
Realized gain or loss is the difference between the amount realized from the sale or other
disposition of property and the adjusted basis at the time of sale or disposition. If the amount
realized exceeds the adjusted basis, there is a realized gain. If the adjusted basis exceeds the
amount realized, there is a realized loss. If a realized gain or loss is recognized, the gain is
includible and the loss is deductible in determining taxable income. Thus, ‘‘recognition'' means
that the result of a particular transaction is considered to be taxable income or a deductible loss.

Gain or Loss: Sale of Stock
10-47
Basis per share of stock purchased on April 18, 2012: \$7 (\$210 ÷ 30).
Basis per share of stock purchased on September 29, 2012: \$10 (\$900 ÷ 90).
Sale on November 28, 2012: 30 shares (all of 4-18-12 purchase) \$ 210
18 shares (18 of 9-29-12 purchase)                                   180
Basis under FIFO                                                  \$ 390
Selling price                                                     \$ 576
Less: Basis                                                          390
Gain                                                              \$ 186
Sale on December 8, 2012: Selling price                           \$ 188
Less: Basis (25 × \$10)                                               250
Loss                                                              ( \$ 62)
Combining the two sales: Gain                                     \$ 186
Loss                                                                ( 62)
Net gain                                                          \$ 124

Like-Kind Exchanges: Basis and Gain or Loss
11-40

Debbie has realized gain of \$3,000, recognized gain of \$3,000, and the basis of the new
property is \$10,500.
FMV received (\$10,500 + \$4,500)                    \$15,000
Less: Basis given                                    12,000
Gain realized                                       \$ 3,000
Gain recognized                                     \$ 3,000

Method I: Basis of old property                       \$12,000
Plus: Gain recognized                                   3,000
Basis of new property                                 \$10,500

Method II: FMV of property
Less: Deferred gain                                         0
Basis of new property                                 \$10,500

Elizabeth has \$1,500 gain realized, no recognized gain, and the basis of her property is
\$13,500.
Less: Basis given (\$9,000 + \$4,500)                 13,500
Gain realized                                       \$ 1,500
Gain recognized                                           0
Method I: Basis of old property                      \$ 9,000
Plus: Boot given                                       4,500
Basis of new property                                \$13,500

Method II: FMV of property received                  \$15,000
Less: Deferred gain                                    1,500
Basis of new property                                \$13,500

Holding Period: Like-Kind Exchange
12-34
In a nontaxable exchange such as Jim had where he uses the basis of \$40,000 that he had in
his old asset as the basis of his new asset, the holding period begins with the day following the
date of acquisition of the old property, or November 18, 2011. In other words, the holding period
of the old asset is tacked on.

Section 1231 Assets: Includible Property
12-48
Items (a), (c) and (e) are Section 1231 assets. Machinery used in the business, a factory
building, and land used in a business are all Section 1231 assets.

A personal home is a capital asset as is the land held as an investment and the shares of stock
in Jones Corporation.

The inventory is an ordinary asset as is the musical composition held by the composer.

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