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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 41

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In determining the basis of like-kind property received,postponed losses are:

A) Added to the basis of the old property.
B) Subtracted from the basis of the old property.
C) Added to the fair market value of the like-kind property received.
D) Subtracted from the fair market value of the like-kind property received.
E) None of the above.

F) A) and D)
G) A) and C)

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Question 42

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If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

A) True
B) False

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Question 43

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As part of the divorce agreement,Hugh transfers his ownership interest in their personal residence to Monica.The house had been jointly owned by Hugh and Monica and the adjusted basis is $590,000.At the time of the transfer to Monica,the fair market value is $900,000.What is the recognized gain to Hugh,and what is Monica's basis for the house?

Abby exchanges 3,000 shares of Osprey,Inc.,stock for 1,500 shares of Blue Heron,Inc.,stock.Abby's adjusted basis for the Osprey stock is $270,000 and the fair market value of the Blue Heron stock is $300,000.Abby's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $270,000.

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

Carl sells his principal residence,which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence) ?

a.Orange Corporation exchanges a warehouse located in Michigan (adjusted basis of $560,000)for a warehouse located in Ohio (adjusted basis of $450,000; fair market value of $525,000).Indicate the amount of gain or loss that is recognized by Orange Corporation on the exchange,and the basis of the warehouse acquired.

Which of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30,2012.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1,2013.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31,2015.What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?

Matt,who is single,sells his principal residence,which he has owned and occupied for 5 years,for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

Taxpayer owns a home in Atlanta.His company transfers him to Chicago on January 2,2012,and he sells the Atlanta house in early February.He purchases a residence in Chicago on February 3,2012.On December 15,2012,taxpayer's company transfers him to Los Angeles.In January 2013,he sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period,§ 121 treatment does not apply to the sale of the second home.

The maximum amount of the § 121 gain exclusion on sale of a principal residence is $250,000 for a single individual and $500,000 for a married couple.

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?

Leta has a fiscal tax year which ends on June 30th.Her factory building is destroyed by a fire on October 12,2012.Two months later,she receives insurance proceeds large enough to produce a realized gain.In order to elect § 1033 postponement,Leta must acquire qualified replacement property by December 31,2014.

On January 5,2012,Waldo sells his principal residence with an adjusted basis of $270,000 for $690,000.He has owned and occupied the residence for 15 years.He pays $35,000 in commissions and $2,000 in legal fees in connection with the sale.One month before the sale,Waldo painted the exterior of the house at a cost of $5,000 and repaired various items at a cost of $3,000.On October 15,2012,Waldo purchases a new home for $600,000.On November 15,2013,he pays $25,000 for completion of a new room on the house,and on January 14,2014,he pays $15,000 for the construction of a pool.What is the Waldo's recognized gain on the sale of his old principal residence and what is the basis for the new residence?

Pat owns a 1965 Mustang car which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

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?

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.

Betty owns a horse farm with 500 acres of land (adjusted basis of $600,000) .Fifty acres of the land are condemned by the state for $400,000 in order to build a municipal stadium.Since the fair market value of Betty's farm is significantly decreased by the proximity to the future stadium,the state awards Betty $300,000 in severance damages.Betty does not use the $300,000 to restore the usefulness of the farm and all of the $700,000 ($400,000 + $300,000) proceeds are invested in the stock market.What is her recognized gain or loss associated with the receipt of the severance damages?

For each of the following involuntary conversions,determine if the property qualifies as replacement property.