Item Proceeds Basis Gain or (Loss) Short- or Long-Term Amount to be Reported on Tax Return

1. Stock inherited from an uncle whose basis was

$5,000. FMV at death was $8,500. Stock sold for
$9,200 by nephew after 6 months. Uncle held stock for
12 years.
$9,200 $8,500
Basis is the FMV at date of
death or alternate lower
valuation date (ALVD)
$700 Long-term
Automatic
Inherited assets get
long-term holding
periods
$700
2. Stock received as a gift. Donor's basis was
$3,000. FMV at date of gift was $4,500. Donor
owned stock for 3 years. Recipient sold stock after 90
days for $6,300.
$6,300 $3,000
General rule
$3,300 Long-term
The donor held the
stock for 3 years;
recipient gets LT
treatment.
$3,300
3. Stock received as a gift. Donor's basis was
$3,000. FMV at date of gift was $2,500. Donor
owned stock for 3 years. Recipient sold stock after 90
days for $4,500.
$4,500 $3,000
Gain basis
FMV was < basis, but sales
price exceeded basis.
$1,500 Long-term
FMV at gift date
not used as the
basis; recipient
keeps donor's
$1,500
4. Stock received as a gift. Donor's basis was
$3,000. FMV at date of gift was $2,000. Donor
owned stock for 3 years. Recipient sold stock after 90
days for $1,500.
$1,500 $2,000
Loss Basis
FMV was < basis, and
sales price was less than
the FMV.
($500) Short-term
FMV at gift date
used as basis, so
holding period
starts with gift date.
($500); assuming not greater
than $3,000 in net losses exist
5. Stock received as a gift. Donor's basis was
$3,000. FMV at date of gift was $2,000. Donor
owned stock for 3 years. Recipient sold stock after 90
days for $2,600.
$2,600 In-between basis. $2,600
FMV was < basis, but sales
price was between.
$0
No gain/no
loss
N/A $0
6. Taxpayer inherited property with FMV at death of
$4,000 and decedent's basis of $3,000. Decedent
owned for 1 day. ALVD elected and FMV was $5,000.
Sold for $6500 in a year.
$6,500 $5,000
Assume the ALVD validly
elected.
$1,500
Gain
Long-term
automatic;
Long-term
regardless of how
long the decedent
held the property
$1,500

7. 100 shares of stock purchased 6/1/07 for $400. 2:1
split on 10/1/07. Sold half the stock on 5/1/08 for
$300.
$300 100s*2=200s
$400/200=$2/s
100 * $2 = $200 Basis
$100 Short-term $100
8. Personal furniture purchased for $10,000 4 years
ago. Improvements of $3,000 were made. Sold for
$7,500.
$7,500 $10,000 PP +
$3,000 Impr
$13,000 Basis
($5,500) Long-term ZERO
Personal losses are not
deductible
9. Personal residence acquired for $200,000. Owned
by single taxpayer and used as primary residence for
the last 3 years. Sold for $500,000 in the current year.
$500,000 $200,000
Note requirements for
Homeowner exclusion of
$250,000 are met.
$300,000

Long-term $300,000
(250,000)
$50,000 GAIN

10. Real property (no land) purchased for $50,000 3
yrs ago was destroyed by fire last year. FMV
immediately before fire was $80,000. Insurance
proceeds of $80,000 were received, and the taxpayer
rebuilt the property this year for $100,000. Assume the
property is personal property.
$80,000
Note req's
for deferral
of gain are
met.
$50,000 $30,000
This gain
will be
deferred, as
proceeds
put back in
Long-term ZERO: New Basis =
$50,000 PP
20,000 Addl
$70,000
--OR
$100,000 new, less $30,000
deferred gain = $70,000
11. Real property (no land) purchased 3 yrs ago for
$50,000 was destroyed by fire last year. FMV
immediately before fire was $70,000. Insurance
proceeds of $80,000 were received, and the taxpayer
rebuilt the property this year for $100,000. Assume the
property is personal property.
$80,000
Note req's
for deferral
of gain are
met.
$50,000
Note the FMV loss is
$70,000, but the same
proceeds were received as
in Item 10.
$30,000
This gain
will be
deferred, as
proceeds
put back in
Long-term ZERO: New Basis =
$50,000 PP
20,000 Addl
$70,000
--OR
$100,000 new,
less $30,000 deferred gain =
$70,000
12. Real property (no land) purchased 3 years ago for
$50,000 was destroyed by fire last year. FMV
immediately before fire was $70,000. Insurance
proceeds of $80,000 were received, and the taxpayer
rebuilt the property this year for $75,000. Assume the
property is personal property.
$80,000 $50,000
_________

NEW BASIS = $75,000
new, less deferred gain of
$25,000, or $50,000

$30,000 Long-term $5,000
Taxpayer only re-invested
$75,000, not the full $80,000
proceeds.
13. Real property (no land) purchased 3 years ago for
$50,000 was destroyed by fire last year. FMV
immediately before fire was $70,000. Insurance
proceeds of $45,000 were received, and the taxpayer
rebuilt the property this year for $90,000. Assume the
property is business property.
$45,000 $50,000 ($5,000) Long-term ($5,000) Loss, and NEW
BASIS = $90,000
14. Taxpayer traded an old building (purchased 6 years
ago) for a new building and fully depreciated personal
property. NBV of the old building was $200,000, and
FMV was $500,000. The FMV of the new building
was $460,000 and the FMV of the fully depreciated
personal property received with the new building was
$40,000.
$500,000 $200,000 $300,000
Recognize
lower of the
realized
gain
($300,000)
or the boot
received
($40,000)
Long-term Sec 1245 ordinary income
(recapture) of $40,000 for
personal property
_________

$260,000 deferred gain on Sec
1031 exchange
15. A non-dealer in real estate sold a plot of land (4yrs
old) with a basis of $200,000 for $800,000 in the
current year. The sale was reported as an installment
sale, in which the taxpayer received $100,000 down
and principal note payments of $60,000 in the current
year.
$800,000 $200,000
Gross profit % = 600/800
= 75%

$600,000
**After
you show
the gain of
$120,000,
indicate
deferred
gain is
$480,000
Long-term $120,000
$100,000 + $60,000
= $160,000 cash rec'd
$160,000 * 75% gross profit %
= $120,000
16. A corporation bought its own stock in the open
market for $25 per share. It subsequently re-issued the
stock for $30/share after 7 months of purchase.
$30/share $25/share $5/share N/A;
**Note companies
cannot "deal" in
their own securities
ZERO;
Gains and losses on treasury
stock are disallowed
17. Taxpayer (TP) purchased 500 shares of Southwest
Energy Corp. for $10/share on 7/15/05. TP sold the
500 shares on 3/2/08 for $7/share. On 3/31/08, the
taxpayer purchased 500 shares of Southwest Energy
for $8/share and has not resold as of 12/31/08.
$3,500 $5,000 ($1,500) Long-term;
Alternate
calculation of new
basis is old basis of
$5,000 less SP of
1st ($3500) plus PP
of new ($4000) =
$5,500
ZERO;
Wash sale loss is disallowed.
Basis of new shares is
$8/share ($4,000) + $1500
disallowed loss on 2008 sale,
or $5,500.
18. Taxpayer purchased 500 shares of Southwest
Energy Corp. for $10/share on 7/15/05. TP sold the
500 shares on 3/2/08 for $7/share. On 3/31/08, the
taxpayer purchased 500 shares of Southwest Energy
for $8/share, sold the entire lot for $9/share on
10/31/08 and did not repurchase.
$4,500 $5,500
$8/share * 500 = $4000
Plus $1500 disallowed loss
on prior wash sale OR use
per share method: $10 PP
+ ($8 - $7) = $11 per share
basis * 500.
See #17 too!
($1,000) Long-term
(The first purchase
date is used in the
calculation.)
($1,000)
19. Taxpayer sold land she owned for 4 years with a
basis of $60,000 to her brother for $70,000.
$70,000 $60,000
Brother's basis will be
$70,000.
$10,000 Long-term $10,000
Most related party gains
always reported!
20. Taxpayer sold land she owned for 4 years with a
basis of $60,000 to her brother for $40,000. The
brother sold the land for $70,000 6 months later.
$70,000
Sale by
brother.
Sister has
disallowed
$20K loss.
$60,000
Gain basis

$10,000 Short-term
Starts with date
brother purchased
property
$10,000 by brother
21. Taxpayer sold land she owned for 4 years with a
basis of $60,000 to her brother for $40,000. The
brother sold the land for $50,000 6 months later.
$50,000
Brother's
tax return
$50,000
In-between basis
ZERO


Short-term
Starts with new
owner's purchase
date
ZERO
Sister had disallowed loss of
$20,000
22. Taxpayer sold land she owned for 4 years with a
basis of $60,000 to her brother for $40,000. The
brother sold the land for $25,000 6 months later.
$25,000
Brother's
tax return
$40,000
Loss basis
($15,000)
($20,000
loss to
sister
remains
disallowed)
Short-term ($15,000)
23. Individual taxpayer sold stock purchased 4 years
ago ($10,000 basis) for $2,000. She also sold stock
purchased 4 months prior (basis $1,000) for $5,000.
$7,000
$2,000 +
$5,000
$11,000
$10,000 + $1,000
($4,000) Net long-term ($3,000)
Maximum allowable capital
loss deduction.
($1,000) loss carryforward
24. A C Corporation sold stock purchased 4 years ago
$7,000 $11,000 ($4,000) Short-term ZERO
($10,000 basis) for $2,000. It also sold stock
purchased 4 months prior (basis $1,000) for $5,000.
$2,000 +
$5,000
$10,000 + $1,000 ALWAYS Carryback 3 years and
carryforward 5 years against
capital gains
25. Taxpayer inherited property (FMV $10,000 &
decedent's basis of $1,000). The ALVD was elected.
Property distributed 4 months after date of death (FMV
$11,000). Sold for $12,000 in 2 weeks.
$12,000 $11,000
ALVD was elected, so use
FMV at earlier distr.
date. CAREFUL! If
ALVD not elected, $10k is
basis!
$1,000 Long-term
Automatic
Long-term property
$1,000