Exam 9: Tax-Deferred Exchanges

Marvin sold his sister, Sue, some stock for $20,000 purchased two years ago for $25,000. Nine months later, Sue sold the stock for $27,000. How much gain does Sue recognize on the sale?

Expected insurance settlements have no effect on the timing of the deduction for a casualty loss.

A condemnation is one type of involuntary conversion.

Which of the following characteristics is the same for transfers of property to both a corporation and to a partnership in exchange solely for an ownership interest?

Stan and Billie have decided to divorce. As part of the divorce settlement, Billie received stock valued at $200,000 that had a basis of $120,000; Stan received their home that had a basis of $240,000 but a fair market value at the time of the divorce of $400,000. Two years after the divorce, Billie sells the stock for $300,000 and a year later Stan sells the home for $600,000 after the twins leave for college. a. How much is Billie's realized and recognized gain or loss on the sale of the stock? b. How much is Stan's realized and recognized gain or loss on the sale of the home.

Simon purchased 1,000 shares of ABC stock for $8,000 on April 4. On March 1 he had sold 1,500 shares of ABC stock for $9,000 that he had purchased three months earlier for $15,000. What is Simon's realized and recognized loss, respectively, on the March 1 stock sale?

Which type of reorganization does not entail a transfer of assets for stock?

Both gain and loss are deferred in a like-kind exchange.

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 Luke's basis in his partnership interest?

In early 2018, Conrad Corporation discovered their bookkeeper had embezzled $30,000 over the last three years at a rate of approximately $10,000 per year. Conrad also suffered uninsured hurricane damage of $40,000 late in 2018 in a presidentially declared disaster area. If Conrad wants to deduct its losses at the earliest time possible, what are the amounts (before any limitations) and year(s) of its loss deduction?

Which type of reorganization involves only one corporation?

The loss on the total destruction of business property is always its adjusted basis regardless of fair market value.

James corporation exchanges a building (fair market value = $800,000, adjusted basis = $600,000) that has a $100,000 mortgage for another building owned by Pete Corporation (fair market value = $1,100,000, adjusted basis = $600,000) that is encumbered by a $400,000 mortgage. Each party assumes the mortgage on the building received. What are James's and Pete's realized gains on this exchange, respectively?

On January 31, year 6, Roy sold investment property he purchased five years ago for $10,000 to Hal for $18,000 Hal made a $8,000 down payment on the date of sale, a $6,000 payment on January 31 of year 2 and the balance on January 31, year 3. In addition, the Hal paid 6 percent interest on the unpaid balance. How much income should Roy recognize in years 1, 2, and 3 assuming he used the installment method?

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 real property?

Sarah's building is condemned by the state on October 19, 2017. The building has a basis of $400,000 and Sarah receives $600,000 from the state on February 10, 2018. On January 20, 2019, Sarah purchases qualifying replacement property for $565,000. What is Sarah's realized and recognized gain or loss on the condemnation?

In 2017, Larry's car, which he purchased six years ago for $6,000, was demolished in a traffic accident. As a result of the delay caused by this accident, Larry missed a business meeting and lost out on an important sale on which he could have earned a $1,200 commission. When he arrived home, he found his house had been broken into and his personal video equipment currently worth $3,200 (original cost = $5,000) had been stolen, along with his baseball card collection valued at $2,000 (basis = $1,500). Larry's homeowner's policy covered only $3,000 of this theft loss. He had dropped the collision coverage on his auto insurance policy because that portion was too expensive, so he had no insurance coverage for his auto accident. His adjusted gross income is $82,000 and the fair market value of the car at the time of the accident was $8,000. How much can Larry deduct as an itemized deduction for his casualty and theft losses? If this occurred in 2018 (instead of 2017), what amount is deductible?

Willow Corporation exchanged land valued at $250,000 (adjusted basis = $175,000) for a building owned by Tree Corporation valued at $350,000 (adjusted basis = $200,000) and $50,000 cash. In addition, Willow assumed the $150,000 mortgage on Tree's building. What are Willow and Tree's realized gains or losses on the properties exchanged, respectively?

Juan owned a small rental property, which was condemned by the county to expand a local park. His adjusted basis in the property was $40,000 and he received a payment of $75,000 from the county. A year later he purchased a similar piece of real estate for $70,000.What is Juan's recognized gain on the involuntary conversion of his rental property?

Trudo Corporation has a building that it needs to sell or exchange because of growth in its business. If Trudo sells the building, it will have a gain of $450,000. What is the amount of taxes that Trudi will avoid paying if it can exchange the building? The corporation has $1,000,000 of taxable income from operations for the current year.