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Sale of Asset Received as a Gifr. Bud received 200 shares of
Georgia Corporation stock from his uncle as a gift on July 20, 2018, when the
stock had a $45,000 FMV. His uncle paid $30,000 for the stock on April 12,
2002. The taxable gift was $45,000, because his uncle made another gift co Bud
for $20,000 in January and used the annual exclusion. The uncle paid a gift tax
of $1,500. Without considering the transactions below, Bud’s AGI is $45,000 in
2019. No ocher transactions involving capital assets occur during the year.
Analyze each transaction below, independent of the ochers, and determine Bud’s
AGI in each case.
a. He sells the stock on October 12, 2019, for $48,000.
b. He sells the stock on October 12, 2019, for $28,000.
c. He sells the stock on December 16, 2019, for $42,000.

Sale of Assets Received as a Gifr and Inherited . Daniel
receives 400 shares of A&M Corporation stock from his aunt on May 20, 2019,
as a gift when the stock has a $60,000 FMV. His aunt purchased the stock in
2009 for $42,000. The taxable gift is $60,000 because she made earlier gifts to
Daniel during 2019 and used the annual exclusion. She paid a gift tax of $9,300
on the gift of A&M stock to Daniel. Daniel also inherited 300 shares of
Longhorn Corporation preferred stock when his uncle died on November 12, 2018,
when the stock’s FMV was $30,000. His uncle purchased the stock in 1997 for
$27,600. Determine the gain or loss on the sale of A&M and Longhorn stock
on December 15, 2019, under each alternative situation below.
a. A&M stock was sold for $62,600, and Longhorn stock
was sold for $30,750.
b. A&M stock was sold for $58,200, and Longhorn stock
was sold for $28,650.
c. Assume the same as in Part a except his aunt purchased
A&M stock for $71,000 and his uncle purchased Longhorn stock for $31,200.

Personal-Use Property Converted to Rental Property. Tally
owns a house that she has been living in for eight years. She purchased the
house for $245,000 and the FMV today is $200,000. She is moving into her
friend’s house and has decided to convert her residence co rental property.
Assume 20% of the property’s value is allocated to land.
a. What is the basis of the house for depreciation?
b. If she claims depreciation of $15,000 and sells the
property six years later for $260,000 (20% allocated to land), determine the
gain on the sale of the building and gain on the sale of the land.
c. How much of the gain is due to depreciation?
d. If the FMV is $290,000 when she converts the house co
rental property instead of $200,000, what is the basis of the house for
depreciation?

Stock Rights. Kathleen owns 500 shares of Buda Corporation
common stock which was purchased on March 20, 2000, for $48,000. On October 10
of the current year, she receives a distribution of 500 stock rights. Each
stock right has a $20 FMV and the FMV of the Buda common stock is $100 per
share. With each stock right, she may acquire one share of Buda common stock
for $95.
a. How much gross income muse Kathleen recognize?
b. What is the basis of each stock right received?
c. If she sells the 500 stock rights for $10,600, what is
her gain?
d. If she exercises the 500 stock rights on November 10,
what is the basis of the 500 shares she receives and when does the holding
period for chose shares scare?

Stock Rights. Martha Lou owns 100 shares of Blain
Corporation common stock. She purchased the stock on July 25, 1998, for $4,000.
On May 2 of the current year, she receives a nontaxable distribution of 100
stock rights. Each stock right has a $10 FMV, and the FMV of the Blain common
stock is $70 per share. With each stock right, Martha Lou may acquire one share
of Blain common for $68 per share. Assuming chat she elects co allocate basis
co the stock rights, answer the following:
a. What is the basis allocated co the stock rights?
b. If she sells the stock rights on June 10 for $1,080,
determine the amount and character of the recognized gain?
c. If she exercises the stock rights on May 14, what is the
basis of the 100 shares purchased and when does the holding period stare?
d. If she does nor elect co allocate basis co the stock
rights, determine the amount and character of the gain if she sells the stock
rights on June 10 for $1,080?

Real Property Subdivided for Sale. Bech acquired only one
tract of land seven years ago as an investment. In order to sell the land at a
higher price, she decides to subdivide it into 20 lots. She pays for
improvements such as clearing and leveling, bur the improvements are not
considered to be substantial. Each lot has a basis of $2,000, and a selling
price of $6,000. Selling expenses of $480 were incurred to sell two lots lase
year. This year, ten lots are sold, and selling expenses amount co $1,900. How
much ordinary income and capital gain must be recognized in the prior and
current year?

Marginal Tax Rates. Mr. and Mrs. Dunbar have taxable income
of $260,000 without considering the following sales. Consider the following
independent cases where capital gains are recognized and determine the marginal
tax race for the capital gain in each case. Ignore the effect of increasing AGI
on deductions.
CASE A: $10,000 gain from sale of Storm Lake common stock
held for seven months.
CASE B: $10,000 gain from sale of antique clock held for six
years.
CASE C: $10,000 gain from sale of Ames preferred stock held
for three years.
a. Determine Trisha’s increase in income tax liability as a
result of the three sales. All assets are stock held for investment. Ignore the
effect of increasing AGI on deductions and phaseout amounts.
b. Determine her increase in income tax liability if the
holding period for asset B is 8 months.
c. Determine her increase in income tax liability if the
holding periods are the same as in Pare a but asset B is an antique clock.
d. Determine her increase in income tax liability if her
taxable income is $700,000.

Computing the Tax. Donna files as a head of household in
2019 and has taxable income of $110,000, including the sale of a stock held as
an investment for cwo years at a gain of $20,000. Only one asset was sold
during the year and Donna does not have any capital loss carryovers.
a. What is the amount of Donna ‘s tax liability?
b. What is the amount of Donna’s tax liability if the stock
is held for 11 months?

Computing the Tax . Mr. and Mrs. Sedlock file a joint return
and have taxable income of $370,000 without considering the following
information below. Determine the increase in their tax liability for the
following independent face situations.
a.They have a STCG of $20,000 and a LTCL of $12,000.
b. They have a LTCG of $30,000 due to the sale of a
collectible and a LTCG of $9,000 due to the sale of General Motors stock.
c. Same as Part b except they also have a STCL of $4,400.

Computing the Sales Price. An investor in a 32 % tax bracket
and a 15% rate on ANCG owns land that is a capital asset with a $50,000 basis
and a holding period of three years. The investor who is single wishes to sell
the asset at a price high enough so that he will have $120,000 in cash after
paying the income taxes.
a. What is the minimum price the investor could accept?
b. What is the minimum price the investor could accept if
all the gain is subject to the Medicare tax on net investment income?