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Exam 15: Property Transactions Nontaxable Exchanges

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Question 21

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Melvin receives stock as a gift from his uncle.No gift tax is paid.The adjusted basis of the stock is $30,000 and the fair market value is $38,000.Melvin trades the stock for bonds with a fair market value of $35,000 and $3,000 cash.What is his recognized gain and the basis for the bonds?

A) $0,$30,000.
B) $5,000,$33,000.
C) $5,000,$30,000.
D) $8,000,$33,000.
E) None of the above.

F) B) and C)
G) C) and D)

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Question 22

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The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

A) True
B) False

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Question 23

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Kelly,who is single,sells her principal residence,which she has owned and occupied for 8 years,for $375,000.The adjusted basis is $64,000 and selling expenses are $22,000.She purchases another principal residence three months later for $200,000.Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

Libby's principal residence is destroyed by a tornado.She is single and her realized gain is $360,000.Is it possible for Libby's recognized gain to be $0?

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?

During 2016,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?

Section 1033 (nonrecognition of gain from an involuntary conversion)applies to both gains and losses.

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

Pat owns a 1965 Ford Mustang 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.

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).

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

During 2016,Zeke and Alice,a married couple,decided to sell their residence,which had a basis of $200,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the inside painted in April at a cost of $5,000 and paid for the work immediately.They sold the house in May for $800,000.Broker's commissions and other selling expenses amounted to $50,000.They purchased a new residence in July for $400,000.What is the recognized gain and the adjusted basis of the new residence?

Under what circumstance is there recognition of some or all of the realized gain associated with the giving of boot by the taxpayer in a like-kind exchange?

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.

Terry exchanges real estate (acquired on August 25,2010)held for investment for other real estate to be held for investment on September 1,2016.None of the realized gain of $10,000 is recognized,and Terry's adjusted basis for the new real estate is a carryover basis of $80,000.Consequently,Terry's holding period for the new real estate begins on August 25,2010.

During 2016,Howard and Mabel,a married couple,decided to sell their residence.The residence has a basis of $162,000 and has been owned and occupied by them for 11 years.The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000.They purchased a new residence in June for $400,000.What is the adjusted basis of the new residence?

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?

Ross lives in a house he received as a gift from his father.His father had lived in the house for 12 years.The adjusted basis of the house to his father was $160,000 and the fair market value at the time of the gift was $140,000.Ross sells this residence after living in it for 18 months for $150,000 and purchases a new home for $125,000.He incurs selling expenses of $7,000.What is Ross' recognized gain or loss and basis for the new residence?

Carlos,who is single,sells his personal residence on November 5,2016,for $400,000.His adjusted basis was $125,000.He pays realtor's commissions of $20,000.He owned and occupied the residence for 12 years.Having decided that he no longer wants the burdens of home ownership,he invests the sales proceeds in a mutual fund and enters into a 1-year lease on an apartment.The detriments of renting,including a crying child next door,cause Carlos to rethink his decision.Therefore,he purchases another residence on November 6,2017,for $275,000.Is Carlos eligible for exclusion of gain treatment under § 121 (exclusion of gain on sale of principal residence)? Calculate Carlos's recognized gain and his basis for the new residence.

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency,the basis of the replacement property will be more than its cost (cost plus realized gain).