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Exam 15: Property Transactions: Nontaxable Exchanges

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Question 31

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Mandy and Greta form Tan,Inc.,by transferring the following assets to the corporation in exchange for 5,000 shares of stock each.

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Tan has no recognized gain on the receip...

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Question 32

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Samuel's hotel is condemned by the City Housing Authority on July 5,2012,for which he is paid condemnation proceeds of $950,000.He first received official notification of the pending condemnation on May 2,2012.Samuel's adjusted basis for the hotel is $600,000 and he uses a fiscal year for tax purposes with a September 30 tax year-end.

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Question 33

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Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

A condemned office building owned and used in the business by a taxpayer can be replaced by land and qualify for nonrecognition treatment.

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.

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?

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?

The basis of boot received in a like-kind exchange is its fair market value,unless the realized gain is a smaller amount.

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

Karla owns 200 acres of farm land is southeastern Virginia.Her adjusted basis for the land is $240,000 and there is a $200,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark,New Jersey.The building has a fair market value of $450,000.Chris assumes Karla's mortgage on the land.What is the amount of Karla's recognized gain or loss on the exchange?

Eunice Jean exchanges land held for investment located in Rolla,Missouri,for land to be held for investment located near Madrid,Spain.Her basis for the land given up is $370,000 and the fair market value of the land received is $390,000.Eunice Jean also receives cash of $25,000.

Lily exchanges a building she uses in her rental business for a building owned by Kendall,her brother,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

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?

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

Which of the following might motivate a taxpayer to try to avoid like-kind exchange treatment?

On October 1,Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000) for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000) .The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

Virginia,who is single,sells her principal residence (adjusted basis of $150,000) on January 5,2012,for $380,000.She has owned and occupied it as her principal residence for 20 years.She incurs a realtor's commission of $22,000 and legal fees of $5,000.On January 3,2012,Virginia purchases a townhouse for $300,000 and uses it as her principal residence.Because it was not near a convenience store,she sells the townhouse on December 20,2012,for $330,000.She incurs a realtor's commission of $18,000 and legal fees of $4,000.She buys a house on December 1,2012,for $250,000 and uses it as her principal residence.What is Virginia's recognized gain on the sale of each house and her adjusted basis for the house purchased on December 1,2012?

Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Eric and Faye,who are married,jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years,they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence) and if they elect to forgo the § 121 exclusion? With exclusion Elect to forgo