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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 51

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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 these.

F) A) and E)
G) None of the above

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Question 52

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To be eligible to elect postponement of gain treatment for an involuntary conversion,what are the three tests for qualifying replacement property?

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The three tests for qualifying replaceme...

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Question 53

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Discuss the treatment of realized gains from involuntary conversions.

During 2014,Ted and Judy,a married couple,decided to sell their residence,which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.Since they both are age 68,they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

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?

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.

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

Cole exchanges an asset (adjusted basis of $15,000;fair market value of $25,000)for another asset (fair market value of $19,000).In addition,he receives cash of $6,000.If the exchange qualifies as a like-kind exchange,his recognized gain is $6,000 and his adjusted basis for the property received is $21,000 ($15,000 + $6,000 recognized gain).

To qualify for the § 121 exclusion,the property must have been used by the taxpayer for the 5 years preceding the date of sale and owned by the taxpayer as the principal residence for the last 2 of those years.

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

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?

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?

At a particular point in time,a taxpayer can have two principal residences for § 121 exclusion purposes.

Discuss the relationship between realized gain and boot received in a § 1031 like­kind exchange.

Discuss the relationship between the postponement of realized gain under § 1031 (like­kind exchanges)and the adjusted basis and holding period for the replacement property.

Sidney,a calendar year taxpayer,owns a building (adjusted basis $450,000)in Columbus,OH,in which he conducts his retail computer sales business.The building is destroyed by fire on December 12,2014,and two weeks later he receives insurance proceeds of $600,000.Due to family ties,Sidney decides to move to Columbia,SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2015.By electing § 1033,Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

Patty's factory building,which has an adjusted basis of $475,000,is destroyed by fire on April 8,2014.Insurance proceeds of $500,000 are received on June 1,2014.She has a new factory building constructed for $490,000,which she occupies on October 1,2014.Assuming Patty's objective is to minimize the tax liability,calculate her recognized gain or loss and the basis of the new factory building.

Molly exchanges a small machine (adjusted basis of $85,000;fair market value of $78,000) used in her business and investment land (adjusted basis of $10,000;fair market value of $15,000) for a large machine (fair market value of $93,000) to be used in her business in a like­kind exchange.What is Molly's recognized gain or loss?

If there is an involuntary conversion (i.e. ,casualty,theft,or condemnation)of the taxpayer's principal residence,the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like­kind exchange.