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Exam 7: Property Transactions: Basis, gain and Loss, and Nontaxable Exchange

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Question 101

Multiple Choice

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

A) Partnership interest for a partnership interest.
B) Inventory for inventory.
C) Securities for personalty.
D) Business realty for investment realty.
E) None of the above.

F) A) and C)
G) C) and E)

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Question 102

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In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

A) True
B) False

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Question 103

Multiple Choice

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Latisha owns a warehouse with an adjusted basis of $200,000.She exchanges it for a strip mall building worth $225,000.Which of the following statements is correct?

Steve purchased his home for $500,000.As a sole proprietor,he operates a certified public accounting practice in his home.For this business,he uses one room exclusively and regularly as a home office.In Year 1,$3,042 of depreciation expense on the home office was deducted on his income tax return.In Year 2,Steve sustained losses in his business; therefore,no depreciation was taken on the home office.Had he been allowed to deduct depreciation expense,his depreciation expense would have been $3,175.What is the adjusted basis in the home?

Ken is considering two options for selling land for which he has an adjusted basis of $100,000 and on which there is a mortgage of $80,000.Under the first option,Ken will sell the land for $225,000 with a stipulation in the sales contract that he liquidate the mortgage before the sale is complete.Under the second option,Ken will sell the land for $145,000 and the buyer will assume the mortgage.Calculate Ken's recognized gain under both options.

In 2013,Fran receives a birthday gift of stock worth $75,000 from her aunt.The aunt has owned the stock (adjusted basis $50,000)for 10 years and pays gift tax of $27,000 on the transfer.Fran's basis in the stock is $75,000-the lesser of $77,000 ($50,000 + $27,000)or $75,000.

Define an involuntary conversion.

Mandy and Greta form Tan,Inc.,by transferring the following assets to the corporation in exchange for 5,000 shares of stock each. Mandy: Cash of $450,000 Greta: Land (worth $450,000; adjusted basis of $90,000). How much gain must Tan recognize on the receipt of these assets?

If insurance proceeds are received for property used in a trade or business,a casualty transaction can result in recognized gain,but cannot result in a recognized loss.

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?

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?

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30,2013.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1,2014.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31,2016.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?

Transactions between related parties that result in disallowed losses might later provide a tax benefit to the related party buyer.

Which of the following statements is correct?

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31,2009.On January 1,2013,he sells 125 shares for $5,000.On January 22,2013,he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

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?

Monroe's delivery truck is damaged in an accident.Monroe's adjusted basis for the delivery truck prior to the accident is $20,000.If Monroe receives insurance proceeds of $21,000 and recognizes a casualty gain of $1,000,his adjusted basis for the delivery truck after the accident is $21,000.

Expenditures made for ordinary repairs and maintenance of property are not added to the original basis in the determination of the property's adjusted basis whereas capital expenditures are added to the original basis.

Jared,a fiscal year taxpayer with a August 31st year-end,owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24,2013.If the insurance settlement was $950,000 (received March 1,2014) ,what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

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.