Exam 24: Property Transactions: Nontaxable Exchanges

In order for the gain on the sale of a personal residence to be excluded under Section 121,a replacement residence must be purchased within two years.

In a nontaxable exchange,Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000,for a new truck having a FMV of $15,000.In addition,Henri paid cash of $5,000.What is Henri's basis in the new truck?

If a principal residence is sold before satisfying the ownership and use tests,part of the gain may be excluded if the sale is due to a change in employment,health,or unforeseen circumstances.

Lana owned a house used as a rental property for three years.During this rental period,she took $60,000 of depreciation deductions.Lana moved into the house and has used it as her principal residence for the past two years.Lana has just sold the house and realized a $200,000 gain.She will recognize gain of

All or part of gain realized on an involuntary conversion is deferred but not permanently excluded if qualifying replacement property is acquired within the requisite period of time.

If real property used in a trade or business or held for investment is condemned,it must be replaced with property having a similar functional use.

The Smiths owned and used their principal residence,with an adjusted basis of $250,000,for ten years.The house is destroyed by a tornado and the Smiths receive insurance proceeds of $800,000.Six months later,they purchase another residence for $850,000. a.What is the amount of gain the Smiths must recognize? b.What is the basis of the new residence?

Whitney exchanges timberland held as an investment for undeveloped land with a $300,000 FMV.Whitney's basis for the timberland is $150,000.She also transfers her tractor with a $15,000 basis and a $10,000 FMV as part of the exchange. a.What is the amount,if any,of gain or loss recognized on the transaction? b.What is the basis of the undeveloped land?

Which of the following statements regarding involuntary conversions is incorrect?

Discuss the rules regarding the holding period for like-kind property received in a nontaxable exchange.

Under what circumstances can a taxpayer obtain a partial exclusion if a home is sold before the use and ownership tests are satisfied?

Sometimes taxpayers should structure a transaction to avoid the application of like-kind provisions.Which of the following conditions is likely to cause a taxpayer to avoid like-kind treatment?

When an involuntary conversion is due to the condemnation of real property held for productive use in a trade or business or for investment,the replacement period will end three years after the close of the first tax year in which any part of the gain is realized.

Indicate with a "yes" or a "no" which of the following are like-kind exchanges (assume all assets are held for business or investment purposes). a.Exchange of common stock held as an investment for land held as an investment. b.Exchange of farmland for an apartment building. c.Exchange of office furniture used in trade or business for computer used in a trade or business d.Exchange of unimproved real estate for improved real estate. e.Exchange of automobile used in trade or business for office building used in trade or business

Where non-like-kind property other than cash is received as boot,the amount of the boot is the property's fair market value.

Indicate with a "yes" or a "no" which of the following are like-kind exchanges. a.Computer used in trade or business for office furniture used in trade or business. b.Apartment building held as an investment for an office building used in trade or business. c.Land used in trade or business for equipment used in trade or business. d.Printer used in trade or business for printer used for personal purposes. e.Exchange of improved real estate held for investment for unimproved real estate held for investment.

In an involuntary conversion,the basis of replacement property is its cost reduced by the gain deferred.

Amber receives a residence ($750,000 FMV,$500,000 adjusted basis)owned for eight years by Jonathan,her former spouse,as part of a divorce settlement.Amber and Jonathan had lived in the home for the four years before the divorce.Seven months after the transfer of the residence,Amber sells it for $790,000.What is the amount of Amber's recognized gain on the sale of the home?

Rosa exchanges business equipment with a $60,000 adjusted basis for a like-kind piece of equipment with a $100,000 FMV and $20,000 of marketable securities.What is Rosa's basis for the new equipment?

Ron and Fay live in Buffalo.They also own a condominium in Orlando (purchased in 2011)which they rent to vacationers.Ron and Fay will be retiring.They plan to live in the Orlando property for two and a half years.When they sell it,they will be able to exclude the full gain which is expected to be about $200,000.