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

What requirements must be satisfied for a delayed swap to qualify for § 1031 like­kind exchange treatment?

Mandy and Greta form Tan, Inc., by transferring the following assets to the corporation in exchange for 5,000 shares of stock each. Mandy: Cash of $450,000 Greta: Land (worth $450,000; adjusted basis of $90,000). How much gain must Tan recognize on the receipt of these assets?

The taxpayer owns stock with an adjusted basis of $15,000 and a fair market value of $8,000. If the stock or cash is going to be given to her niece, it is preferable for the taxpayer to sell the stock and give the $8,000 of cash to her niece. The same preference would exist if the recipient were a qualified charitable organization.

Joyce's office building was destroyed in a fire (adjusted basis of $350,000; fair market value of $400,000). Of the insurance proceeds of $360,000 she receives, Joyce uses $310,000 to purchase additional inventory and invests the remaining $50,000 in short-term certificates of deposit. She received only $360,000 because of a co-insurance clause in her insurance policy. What is Joyce's recognized gain or loss?

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

Arthur owns a tract of undeveloped land (adjusted basis of $145,000) which he sells to his son, Ned, for its fair market value of $105,000. What is Arthur's recognized gain or loss and Ned's basis in the land?

If the fair market value of the property on the date of death is greater than on the alternate valuation date, the use of the alternate valuation amount is mandatory.

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

If a taxpayer purchases taxable bonds at a premium, the amortization of the premium is elective. However, if a taxpayer purchases tax-exempt bonds at a premium, the amortization of the premium is mandatory. Explain this difference in the treatment.

If property that has been converted from personal use to business use has appreciated in value, its basis for gain will be the same as the basis for loss.

Mona purchased a business from Judah for $1,000,000. Judah's records and an appraiser provided her with the following information regarding the assets purchased: Adjusted Basis FMV Land \ 195,000 \ 270,000 Building 310,000 450,000 Equipment 95,000 180,000 What is Mona's adjusted basis for the land, building, and equipment?

A realized gain on the sale or exchange of a personal use asset is recognized, but a realized loss on the sale, exchange, or condemnation of a personal use asset is not recognized.

Tara owns common stock in Taupe, Inc., with an adjusted basis of $250,000. She receives a preferred stock dividend which is nontaxable. a. What effect does the preferred stock dividend have on Tara's adjusted basis of the common stock? b. How is the basis of the preferred stock calculated? c. What effect does the preferred stock dividend have on Tara's gross income?

Paul sells property with an adjusted basis of $45,000 to his daughter Dean, for $38,000. Dean subsequently sells the property to her brother, Preston, for $38,000. Three years later, Preston sells the property to Hun, an unrelated party, for $50,000. What is Preston's recognized gain or loss on the sale of the property to Hun?

The amount of the loss basis of a gift will differ from the amount of the gain basis only if at the date of the gift the adjusted basis of the property exceeds the property's fair market value.

Jared, a fiscal year taxpayer with a August 31st year-end, owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24, 2014. If the insurance settlement was $950,000 (received March 1, 2015), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Ollie owns a personal use car for which he originally paid $48,000. He trades the car in on a sports utility vehicle (SUV) paying the automobile dealer cash of $30,000. If the negotiated price of the SUV is $49,000, what is Ollie's recognized gain or loss and his adjusted basis for the SUV?

If a taxpayer purchases a business and the price exceeds the fair market value of the listed assets, how is the excess allocated among the purchased assets?

Hubert purchases Fran's jewelry store for $950,000. The identifiable assets of the business are as follows: Basis FMV Inventory \ 90,000 \ 97,000 Accounts receivable 55,000 50,000 Building 100,000 225,000 Land 280,000 300,000 Hubert and Fran agree to assign $110,000 to a 7-year covenant not to compete. How should Hubert allocate the $950,000 purchase price to the assets?

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like­kind exchange.