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Exam 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxable Exchanges

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Question 1

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For each of the following involuntary conversions,determine if the property qualifies as replacement property. a.​Chuck's restaurant building is destroyed by fire. He clears the site and builds another restaurant building. b.​​Diane's warehouse which she used for storing inventory is destroyed by a tornado. She purchases another warehouse in which she will store inventory. c.​​Part of Andrew's dairy farm land is condemned to make way for an interstate highway. He uses the condemnation proceeds to construct a barn to be used for storing cattle feed. d.​​Liz owns a shopping mall which is destroyed by a flood. Since the tenant occupancy rate was down, she uses the insurance proceeds to purchase an office building which she will rent to tenants. e.​​Eleanor's Maserati Gran Turismo is stolen. The original cost was $125,000, and she had used it exclusively for personal use. Due to the limited supply of this model, it had appreciated in value. Eleanor received insurance proceeds of $130,000 and uses the proceeds to purchase a replacement Gran Turismo.

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All of the replacements qualify as repla...

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Question 2

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Under the taxpayer-use test for a § 1033 involuntary conversion,the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

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B) False

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Question 3

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During 2017,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?

Taylor inherited 100 acres of land on the death of his father in 2017.A Federal estate tax return was filed and this land was valued therein at $650,000,its fair market value at the date of the father's death.The father had originally acquired the land in 1971 for $112,000 and prior to his death he had expended $20,000 on permanent improvements.Determine Taylor's holding period for the land.

Which of the following types of exchanges of insurance contracts qualify for nonrecognition treatment under § 1035?

On September 18,2017,Jerry received land and a building from Ted as a gift.Ted had purchased the land and building on March 5,2014,and his adjusted basis and the fair market value at the date of the gift were as follows: Ted paid no gift tax on the transfer to Jerry. a.​Determine Jerry's adjusted basis and holding period for the land and building. b.​Assume instead that the FMV of the land was $89,000 and the FMV of the building was $60,000. Determine Jerry's adjusted basis and holding period for the land and building.

Nat is a salesman for a real estate developer.His employer permits him to purchase a lot for $75,000.The employer's adjusted basis for the lot is $45,000,and its normal selling price is $90,000. What is Nat's recognized gain and his basis for the lot?

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.

Patty's factory building,which has an adjusted basis of $475,000,is destroyed by fire on April 8,2017.Insurance proceeds of $500,000 are received on June 1,2017.She has a new factory building constructed for $490,000,which she occupies on October 1,2017.Assuming Patty's objective is to minimize the tax liability,calculate her recognized gain or loss and the basis of the new factory building.

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

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

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?

Ralph gives his daughter,Angela,stock (basis of $8,000; fair market value of $6,000) .No gift tax results.If Angela subsequently sells the stock for $10,000,what is her recognized gain or loss?

When a property transaction occurs,what four questions should be considered with respect to the sale or other disposition?

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.Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

Helen purchases a $10,000 corporate bond at a premium of $1,000 and elects to amortize the premium.On the later sale of the bond for $10,800,she has amortized $300 of the premium.Helen has a recognized gain of $800 ($10,800 amount realized - $10,000 adjusted basis).

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31,2013.On January 1,2017,he sells 125 shares for $5,000.On January 22,2017,he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.