Question 224. If a taxpayer purchases taxable bonds at a premium, the amortization of the premium is elective. However, if a taxpayer purchases tax-exempt bonds at a premium, the amortization o

224. If a taxpayer purchases taxable bonds at a premium, the amortization of the premium is elective. However, if a taxpayer purchases tax-exempt bonds at a premium, the amortization of the premium is mandatory. Explain this difference in the treatment.

225. Maurice sells his personal use automobile at a realized loss. Under what circumstances can Maurice deduct the loss? What if the personal use asset was sold at a realized gain?

226.Define a bargain purchase of property and discuss the related tax consequences.

227. If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

228. Tara owns common stock in Taupe, Inc., with an adjusted basis of $250,000. She receives a preferred stock dividend which is nontaxable.

a. What effect does the preferred stock dividend have on Tara’s adjusted basis of the common stock?

b. How is the basis of the preferred stock calculated?

c. What effect does the preferred stock dividend have on Tara’s gross income?

229. Lois received nontaxable stock rights with a fair market value of $6,000. The fair market value of the stock on which the rights were received is $24,000 (cost $14,000). Assume the rights are exercised by paying $32,000 plus the rights. Discuss how to calculate the basis of the old stock and the basis of the new stock.

230.How is the donee’s basis calculated for the gift of appreciated property for a gift made before 1977? Assume the donor pays gift tax.

231. Joseph converts a building (adjusted basis of $50,000 and fair market value of $40,000) from personal use to business use. Justin receives a building with a $40,000 fair market value ($50,000 donor’s adjusted basis) from his mother as a gift. Discuss the tax consequences with respect to Joseph’s and Justin’s adjusted basis.

232.Discuss the application of holding period rules to property acquired by gift and inheritance.

233. Sam and Cheryl, husband and wife, own property jointly. The property has an adjusted basis of $400,000 and a fair market value of $500,000.

a. Discuss the rules for the calculation of the adjusted basis of the property to Sam if he inherits his wife’s share of the property and Sam and Cheryl live in a community property state.

b. If they live in a common law state?

234.Explain how the sale of investment property at a loss to a brother is treated differently from a sale to a niece.

235.For disallowed losses on related-party transactions, who has the right of offset?

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