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

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Question 71

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What kinds of property do not qualify under the like-kind provisions?

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The property exchanged may not qualify f...

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Question 72

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When a taxpayer has purchased several lots of stock on different dates at different purchase prices and cannot identify the lot of stock that is being sold,he should use either a weighted average approach or a LIFO approach.

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Question 73

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To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Dennis,a calendar year taxpayer,owns a warehouse (adjusted basis of $190,000)which is destroyed by a tornado in October 2015.He receives insurance proceeds of $250,000 in January 2016.If before 2019,Dennis replaces the warehouse with another warehouse costing at least $250,000,he can elect to postpone the recognition of any realized gain.

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

Gift property (disregarding any adjustment for gift tax paid by the donor) :

Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Mary sells her personal use automobile for $20,000.She purchased the car two years ago for $17,000.What is Mary's recognized gain or loss? It increased in value due to its excellent mileage,yet safe design.

Abby sells real property for $300,000.The buyer pays $5,000 in property taxes that had accrued during the year while the property was still legally owned by Abby.In addition,Abby pays $15,000 in commissions and $3,000 in legal fees in connection with the sale.How much does Abby realize (the amount realized) from the sale of her property?

In a casualty or theft,the basis of property involved is reduced by the amount of insurance proceeds received and by any resulting recognized loss.

If a taxpayer reinvests the net proceeds (amount received - related expenses)received in an involuntary conversion in qualifying replacement property within the statutory time period,it is possible to defer the recognition of the realized gain.

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 24,2015.If the insurance settlement was $950,000 (received March 1,2016) ,what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Pedro borrowed $250,000 to purchase a machine costing $300,000.He later borrowed an additional $25,000 using the machine as collateral.Both notes are nonrecourse.Eight years later,the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000.Pedro sells the machine subject to the two liabilities for $45,000.What is his realized gain or loss?

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30,2015.On January 11,2016,the insurance company paid the owner $450,000.The fair market value of the building was $500,000,but under the co-insurance clause,the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12,2016,that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

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?

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4,2015,the date of the decedent's death.The executor distributes the land to Kelly on November 12,2015,at which time the fair market value is $49,000.The fair market value on February 4,2016,is $45,000.In filing the estate tax return,the executor elects the alternate valuation date.Kelly sells the land on June 10,2016,for $48,000.What is her recognized gain or loss?

What effect do the assumption of liabilities have on a § 1031 like-kind exchange?

Ramon sells land with an adjusted basis of $120,000 and a fair market value of $175,000 to Pauline,his wife,for $175,000.Discuss how the tax consequences would differ if Ramon and Pauline had never been married.

Realized losses from the sale or exchange of stock are disallowed if within 30 days before or 30 days after the sale or exchange,the taxpayer acquires substantially identical stock.