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

Carlos, who is single, sells his personal residence on November 5, 2014, 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, 2015, 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.

Pedro borrowed $250,000 to purchase a machine costing $300,000. He later borrowed an additional $25,000 using the machine as collateral. Both notes are nonrecourse. Eight years later, the machine has an adjusted basis of zero and two outstanding note balances of $145,000 and $18,000. Pedro sells the machine subject to the two liabilities for $45,000. What is his realized gain or loss?

If a taxpayer exchanges like­kind property under § 1031 and assumes a liability associated with the property received, the taxpayer is considered to have received boot in the transaction.

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31, 2010. On January 1, 2014, he sells 125 shares for $5,000. On January 22, 2014, he purchases 135 shares of Eagle Corporation stock for $6,075. When does Andrew's holding period begin for the 135 shares?

Discuss the effect of a liability assumption on the seller's amount realized and the buyer's adjusted basis.

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

Brett owns investment land located in Tucson, Arizona. He exchanges it for other investment land. In which of the following locations may the other investment land be located and enable Brett to qualify for § 1031 like­kind exchange treatment?

Noelle received dining room furniture as a gift from her friend, Jane. Jane's adjusted basis was $9,200 and the fair market value on the date of the gift was $7,000. Noelle decided she did not need the furniture and sold it to a neighbor six months later for $6,500. What is her recognized gain or loss?

Alice owns land with an adjusted basis of $610,000, subject to a mortgage of $350,000. Real estate taxes are $9,000 per calendar year and are payable on December 31. On April 1, 2014, Alice sells her land subject to the mortgage for $650,000 in cash, a note for $600,000, and property with a fair market value of $120,000. What is the amount realized?

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

Discuss the relationship between realized gain and boot received in a § 1031 like­kind exchange.

Kelly inherits land which had a basis to the decedent of $95,000 and a fair market value of $50,000 on August 4, 2014, the date of the decedent's death. The executor distributes the land to Kelly on November 12, 2014, at which time the fair market value is $49,000. The fair market value on February 4, 2015, is $45,000. In filing the estate tax return, the executor elects the alternate valuation date. Kelly sells the land on June 10, 2015, for $48,000. What is her recognized gain or loss?

What effect do the assumption of liabilities have on a § 1031 like­kind exchange?