Question

On the date of her death in 2020, Ruth owned land held for investment purposes. The land had an adjusted basis of $150,000 and a fair market value of $120,000. If Ruth had sold the property before her death, the recognized loss would have been $30,000.

A. True

B. False

Answer 1

The statement about Ruth's potential recognized loss on her land is True. For Freda, the equity in her house is the full market value since she has no debt. Ben's equity is calculated by subtracting his remaining debt from the current value of his house.

Step-by-step explanation:

Regarding the question about Ruth's land, the answer would be True. If Ruth owned land with an adjusted basis of $150,000 and a fair market value of $120,000 at the time of her death, and she would have sold the property before her death, she would have recognized a loss of $30,000, as the loss is the difference between the adjusted basis and the fair market value at the time of the sale.

In reference to the other questions about real estate transactions:

• Freda has a gain on her property because she bought a house for $150,000 and it is now worth $250,000. Therefore, her equity in the house is the current fair market value of $250,000.
• For Ben, the current value of the house is $160,000. After paying $20,000 off the bank loan, his remaining debt is $60,000 (originally $80,000 loan minus $20,000 payment). Therefore, his equity in the house is $100,000 ($160,000 value minus the $60,000 debt).