Special Property Tax Transactions: Class Questions - Review 1 - YouTube

Okay let's do some questions on property.

Question number five.

It says, "Among which of the following "related parties are losses from sales and exchanges

not recognized for tax purposes?"

Okay earlier we drew, there's me, there's my parents, there's my kid, there's my bro,

those are not allowed, my bro's kid as a nephew, yes, uncle, yes, cousin, yes because they're

not considered related parties.

Mother-in-law, daughter-in-law, uncle and nephew, brother and sister, ancestors, linear

decedents and in-laws, in-laws, no.

So that gets rid of A and D. Uncle and nephew, no, brother and sister, yes.

So what does that mean?

It means they are related which means gains are taxed, losses are not deductible.

Number six, last sentence first.

"What amount of gain from the sale of the stock to the third party should Martin report

in their income tax return?"

How much gain?

In X3 Fay sold 100 shares of Gemco stock to her son Martin for 11,000 dollars.

Fay had paid 15 for the stock in X0 subsequently in X3, Martin sold the stock to an unrelated

party for 16.

What amount of gain from the sale of the stock to the third party should Martin report on

their X3 income tax return?

Alright so what's happening is let's look at this and we'll draw it out.

And this is sale to a related party.

We've got -- Fay had paid 15, so carry over basis was 15, fair market value is 11.

I'm sorry fair market value is -- Fay sold 100 shares of Gemco stock to her son Martin

for 11.

Fay had paid 15 for the stock.

Subsequently, okay I see, then Martin sold the stock to an unrelated party for 16.

What amount of gain?

Okay so she had paid 15 for the stock.

We don't know much else.

She paid 15 for the stock.

She sold it to her son for 11.

Martin then sold it for 16.

So what do we know?

We know that that is going to be 1,000 dollar gain.

If instead she sold it and let's say the fair market value at the time was 11, he sold it

for this, then that would be a loss.

But she paid 15, boom, therefore we're going to have 1,000 dollars.

Seven, eight and nine are based on the following data.

On March 1, Lois learned that she was bequeathed 1,000 shares of Extra Corp common stock under

the will of her Uncle Pat.

Now what does this mean?

Bequeathed means, hey somebody died, they kicked the bucket, they're 86'd, history,

we'll be hist, we'll be hist, we'll be history.

Name that movie, Wizard of Oz.

Pat had paid 5,000 for the stock in X0.

Fair market value of the stock on March 1, X3 the date of their death was 8,000 and had

gone up to 11,000 six months later.

The executor of the estate elected the AVD for estate tax purposes.

Lois sold the stock for 9,000 on May 1.

The date the executor distributed the stock to her.

Alright so we've got to kind of figure this out here.

Let's draw a little time line and see what's going on.

Here's our time line.

So this person had paid 5,000 for the stock many years ago.

Then, fair market value of the stock on March 1, the date of Pat's death.

So on March 1, the guy died, it was worth eight grand.

Then six months later, six and three is 9/1, that's the AVD, the stock was worth 11.

However, now it says, normally right?

We learned this in Estate, normally you use this value, the date of death, and however,

they decided to use the AVD six months later which is this.

However, they distributed it here on 5/1 when the value was nine.

So normally you use this unless they file an election then you use this, unless they

distribute it before, if they choose this, you use this, what happens then, the value's

nine they sell it for nine, no gain or loss.

Remember that this is all inherited, if it's inherited, inherited is always fair market

value, inherited is always what?

Long-term.

So, how much should Lois include in her individual tax return for the inheritance of the 1000

shares when she received the estate?

Not taxable because remember it's not taxable because it was taxed when the guy's estate,

when he died.

So I get it tax free.

What basis for gain should they use?

They would use the 9,000 if there were a gain.

And they should treat the 1,000 shares as what?

A long-term capital asset, answer D. So seven is zero, eight is C, 9,900 is D. Good questions.