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Exam 15: Property Transactions Nontaxable Exchanges

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Question 61

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Pam exchanges a rental building,which has an adjusted basis of $520,000,for investment land which has a fair market value of $700,000.In addition,Pam receives $100,000 in cash.What is the recognized gain or loss and the basis of the investment land?

A) $0 and $420,000.
B) $100,000 and $420,000.
C) $100,000 and $520,000.
D) $280,000 and $700,000.
E) None of the above.

F) B) and E)
G) B) and C)

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Question 62

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Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

A) Al's business warehouse is destroyed by a tornado on October 31,2016.Al is a calendar year taxpayer.He receives insurance proceeds on December 5,2016.He reinvests the proceeds in another warehouse to be used in his business on December 29,2018.
B) Heather's personal residence is destroyed by fire on October 31,2016.She is a calendar year taxpayer.She receives insurance proceeds on December 5,2016.She purchases another principal residence with the proceeds on October 31,2018.
C) Mack's office building is condemned by the city as part of a road construction project.The date of the condemnation is October 31,2016.He is a calendar year taxpayer.He receives condemnation proceeds from the city on that date.He purchases another office building with the proceeds on December 5,2019.
D) Lizzy's business automobile is destroyed in an accident on October 31,2016.Lizzy is a fiscal year taxpayer with the fiscal year ending on June 30th.She receives insurance proceeds on December 5,2016.She purchases another business automobile with the proceeds on June 1,2019.
E) All of the above.

F) B) and D)
G) A) and B)

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Question 63

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Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Evelyn's office building is destroyed by fire on July 12,2016.The adjusted basis is $315,000.She receives insurance proceeds of $350,000 on August 31,2016.Calculate the amount that Evelyn must reinvest in qualifying property in order that her recognized gain be $20,000.Assume she elects § 1033 (nonrecognition of gain from an involuntary conversion)postponement treatment.

Paula inherits a home on July 1,2016 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $125,000 and move into the inherited home.On September 16,2016,she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1,2016.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

Wyatt sells his principal residence in December 2016 and qualifies for the § 121 exclusion.He sells another principal residence in November 2017.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business.His adjusted basis for the airplane is $325,000 and the fair market value is $310,000.The fair market value of the smaller airplane is $300,000.In addition,Jake receives cash of $10,000.Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

Use the following data to determine the sales price of Etta's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion. Selling expenses $ 45,000 Recognized gain 180,000 Cost of new residence 760,000 Adjusted basis of old residence 225,000 § 121 exclusion 250,000

Moss exchanges a warehouse for a building he will use as an office building.The adjusted basis of the warehouse is $600,000 and the fair market value of the office building is $350,000.In addition,Moss receives cash of $150,000.What is the recognized gain or loss and the basis of the office building?

Dena owns 500 acres of farm land in southeastern Maryland.Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark,New Jersey.The building has a fair market value of $900,000.Chris assumes Dena's mortgage on the land.What is the amount of Dena's recognized gain or loss on the exchange?

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV which she will use exclusively in her sole proprietorship business.This exchange qualifies for nontaxable exchange treatment.

A building located in Virginia (used in business)exchanged for a building located in France (used in business)cannot qualify for like-kind exchange treatment.

A taxpayer whose principal residence is destroyed in a fire can use both the § 121 (sale of residence gain exclusion)and the § 1033 (involuntary conversion postponement of gain)provisions.

Define an involuntary conversion.

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Which of the following statements is correct for a § 1033 involuntary conversion of an office building which is destroyed by fire?

A factory building owned by Amber,Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

An exchange of two items of personal property (personalty)that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Lenny and Beverly have been married and living together in Lenny's home for 6 years.He lived in the home alone for 20 years prior to their marriage.They sell the home,which has an adjusted basis of $120,000,for $700,000.Lenny and Beverly plan to use the § 121 exclusion (exclusion of gain on sale of principal residence) .In Beverly's prior marriage to Dan,Dan sold his principal residence and used the § 121 exclusion.Beverly and Dan filed joint returns during their seven years of marriage.They had lived in Dan's house throughout their marriage.Dan's sale had occurred one year prior to the divorce.Lenny and Beverly purchase a replacement residence for $650,000 one month after the sale.What is the recognized gain and basis for the new home?

Nancy and Tonya exchanged assets.Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000.The house has a mortgage of $200,000 which is assumed by Tonya.Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000.What is Tonya's realized and recognized gain?