Exam 9: Tax-Deferred Exchanges

Sophie received a 30 percent interest in a general partnership in exchange for property valued at $35,000 (adjusted basis = $25,000) and services valued at $5,000. In addition, the partnership assumed the $10,000 liability on the property. What is Sophie's basis in her partnership interest?

Which of the following is not a characteristic of involuntary conversions?

On August 20, 2018, the offices of Cobb Company, a calendar-year taxpayer, were destroyed by a tornado. The building had a fair market value before the tornado of $1,200,000 and a basis of $675,000. Cobb Company received $1,200,000 from its insurance company on December 10, 2018 to make repairs or replace the building. On January 2, 2021, Cobb Company finally invests $1,100,000 in a qualifying replacement building. What is Cobb's realized and recognized gain or loss on this involuntary conversion.

What effect does the assumption of liabilities by the corporation normally have on gain or loss recognition and stock basis determination by a transferring shareholder in a Section 351 transfer?

Four shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share. Benjamin transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000. In exchange, Benjamin receives 30 shares of stock and $5,000 cash. Andrew transfers a machine with a basis of $45,000 and a fair market value of $35,000. Andrew receives 30 shares of stock and $5,000 cash. Emily transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000. Its current basis is $15,000 after recognition of $45,000 in depreciation expense. The corporation assumes the $20,000 balance on the original mortgage and Emily receives 25 shares of stock from the corporation in the exchange. Jackson provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock. What is the corporation's basis for the building it received from Emily?

Molly and Dolly form MD Corporation. Molly transfers a building with a fair market value of $800,000 and a basis of $400,000 that is encumbered by a $100,000 mortgage that the corporation assumes in exchange for 50 percent of MD's stock (fair market value = $700,000). Dolly contributes equipment valued at $900,000 with a basis of $500,000 that is encumbered by a $200,000 liability that the corporation assumes in exchange for the other 50 percent of MD's stock. What are Molly and Dolly's realized and recognized gains and their bases in the stock received. What is the corporation's basis in the contributed assets?

Elizabeth exchanges an office building valued at $400,000 with a $75,000 mortgage and adjusted basis of $180,000 for land valued at $275,000. What is Elizabeth's realized gain on the exchange?

A transfers machines valued at $170,000 (basis = $150,000) along with $30,000 cash to AB Corporation and B transfers real property valued at $320,000 (basis = $310,000) to the corporation. A receives 40 percent of the outstanding stock and B receives 60 percent. B also receives $20,000 from the corporation. What is AB Corporation's basis for the machines?

Which of the following would not be considered an involuntary conversion?

Wally's investment real estate was condemned on November 14, 2018. On February 14, 2019, he received $250,000 for the property that had a basis of $210,000. What is the last date that Wally can acquire replacement property to avoid gain recognition?

Which type of reorganization always involves an exchange of stock for stock?

A theft loss of $10,000 cash by an individual results in a $10,000 casualty loss deduction.

What is the difference between a carryover basis and a substituted basis?

1. Identify the following provisions as deferral (D) or exclusion (E) provisions. -Wash sale b. Sale of personal residence c. Involuntary conversion d. Transfers to a partnership by a partner e. Sale of qualifying small business stock f. Loss on personal auto sale g. Like-kind exchange h. Corporate reorganization

Dylan, Luke, and Hannah form a partnership. Dylan contributes land with a fair market value of $25,000 (basis of $15,000) in exchange for a 25% interest. Luke contributes equipment with a $35,000 fair market value (basis of $38,000) in exchange for a 35% interest, and Hannah contributes a building with a $100,000 fair market value (basis = $35,000) and a mortgage of $60,000 (assumed by the partnership) in exchange for a 40% interest. What is Hannah's basis in her partnership interest?

What is the taxpayer-use test in an involuntary conversion?

Four shareholders form a new corporation in exchange for stock with a fair market value of $1,000 per share. Benjamin transfers investment land (current fair market value of $35,000) that he purchased 10 year ago for $15,000. In exchange, Benjamin receives 30 shares of stock and $5,000 cash. Andrew transfers a machine with a basis of $45,000 and a fair market value of $35,000. Andrew receives 30 shares of stock and $5,000 cash. Emily transfers a rental office building (current fair market value of $45,000) that she purchased 20 years ago for $60,000. Its current basis is $15,000 after recognition of $45,000 in depreciation expense. The corporation assumes the $20,000 balance on the original mortgage and Emily receives 25 shares of stock from the corporation in the exchange. Jackson provided the legal services to organize the corporation (value $5,000) and contributes $10,000 in cash in exchange for 15 shares of stock. What is Benjamin's realized and recognized gain, respectively?

Mary and Doris form MD general partnership. Mary transfers a building with a fair market value of $800,000 and a basis of $400,000 that is encumbered by a $100,000 mortgage that the partnership assumes in exchange for a 50 percent interest in the general partnership. Doris contributes equipment valued at $900,000 with a basis of $500,000 that is encumbered by a $200,000 liability that the partnership assumes in exchange for the other 50 percent general partnership interest. What are Mary and Doris's realized and recognized gains and their bases in their partnership interests. What is the partnership's basis in the contributed assets?

When may a taxpayer deduct a casualty loss in a year other than the year in which the loss occurred?

Both gain and loss are deferred in a wash sale.