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Real Estate Taxation

1.

1.1 Uncle Bill made a gift to nephew Bob of real estate having a fair market value of $500,000. Uncle Bill had purchased the property for $100,000 cash a year earlier. On the date of the gift of the real estate, Uncle Bill paid a gift tax of $100,000 on the $500,000 gift. The gift tax on $400,000 appreciation was $95,000. Nephew Bob's basis in the real estate is

a. $500,000
b. $100,000
c. $195,000
d. $200,000
e. none of the above

Answer: _______

1.2 Uncle Bill dies and leaves real estate to nephew Bob. The federal estate tax value of the real estate was $500,000. Uncle Bill had purchased the real estate for $100,000 cash five years before. Uncle Bill's estate pays a total federal estate tax of $2,000,000. The estate tax attributable to the real estate is $150,000. Nephew Bob's basis in the real estate left to him by Uncle Bill is

a. $250,000
b. $500,000
c. $100,000
d. $400,000
e. none of the above

Answer: _______

2. Tom purchased his home in 1990 for $300,000, consisting of $100,000 cash plus $200,000 he borrowed from The Last Rational Bank. The bank took back a $200,000 mortgage on the property. In 2005, Tom's home is worth $450,000. Tom refinances his home and gets a $400,000 mortgage from The First Second Third Bank. The First Second Third Bank pays off The Last Rational Bank mortgage and takes back a $400,000 mortgage on the property. Tom uses $50,000 of the refinance money to invest in the stock and $50,000 to buy a baseball card collection. Tom's adjusted basis in the his home is

a. $500,000
b. $400,000
c. $350,000
d. $450,000
e. none of the above

Answer: _______

3. Tom and Mary were recently divorced after 10 years of marriage. As part of the property settlement agreement incorporated into the divorce decree, Tom is required to convey his 100 acres of vacant land west of town to Mary. Tom's adjusted basis in the property is $200,000. The fair market value of the property is $400,000. The divorce decree was signed by the judge on October 11, 2004. Tom transferred the real estate to Mary on May 1, 2005. Mary's adjusted basis in the property is

a. $200,000
b. $300,000
c. $400,000
d. unknown, since Tom did not transfer ownership in time
e. none of the above

Answer: _______.

Solution Preview

1.1 Uncle Bill made a gift to nephew Bob of real estate having a fair market value of $500,000. Uncle Bill had purchased the property for $100,000 cash a year earlier. On the date of the gift of the real estate, Uncle Bill paid a gift tax of $100,000 on the $500,000 gift. The gift tax on $400,000 appreciation was $95,000. Nephew Bob's basis in the real estate is
b. $100,000
In a gift situation, the recipient's cost basis is the same as the donor's cost basis.
1.2 Uncle Bill dies and leaves real estate to nephew Bob. The federal estate tax value of the real estate was $500,000. Uncle Bill had purchased the real estate for $100,000 cash five years before. Uncle Bill's estate pays a total federal estate tax of $2,000,000. The estate tax attributable to the real estate is $150,000. Nephew Bob's basis ...

Solution Summary

Real estate taxation is examined in the solution.

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