1. Kareem bought a rental house in March 2008 for $300,000, of which $50,000 is allocated to land and $250,000 to the building. Early in 2010, he had a tennis court built in the backyard at a cost of $7,500. Kareem has deducted $30,900 for depreciation on the house and $1,300 for depreciation on the court. In January 2013, he sells the house and tennis court for $330,000 cash.
a. What is Kareem's realized gain or loss?
b. If an original mortgage of $80,000 is still outstanding and the buyer assumes the mortgage in addition to the cash payment, what is Kareem's realized gain or loss?
c. If the buyer takes the property subject to the $80,000 mortgage, rather than assuming it, what is Kareem's realized gain or loss?
2. Chee purchases Tan Inc. bonds for $108,000 on January 2, 2013. The face value of the bonds is $100,000; the maturity date is December 31, 2017; and the annual interest rate is 5%. Chee will amortize the premium only if he is required to do so. Chee sells the bonds on July 1, 2015, for $106,000.
a. Determine the interest income Chee should report for 2013.
b. Calculate Chee's recognized gain or loss on the sale of the bonds in 2015.
36. Which of the following results in a recognized gain or loss?
a. Kay sells her vacation cabin (adjusted basis of $100,000) for $150,000.
b. Adam sells his personal residence (adjusted basis of $150,000) for $100,000.
c. Carl's personal residence (adjusted basis of $65,000) is condemned by the city. He receives condemnation proceeds of $55,000.
d. Olga's land is worth $40,000 at the end of the year. She had purchased the land six months earlier for $25,000.
e. Vera's personal vehicle (adjusted basis of $22,000) is stolen. She receives $23,000 from the insurance company and does not plan to replace the automobile.
f. Jerry sells used clothing (adjusted basis of $500) to a thrift store for $50.