Question 1

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) $0. 
B) $60,000. 
C) $200,000. 
D) $144,000. 
A) $0. 
B) $60,000. 
C) $200,000. 
D) $144,000.

Question 3

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.

Accepted Answer

A) True 
 B)False

Question 4

Laurie owns land held for investment.The land's FMV is $150,000.Laurie's basis in the land is $130,000.Laurie exchanges the land,plus $20,000 of cash,for a warehouse owned by Trey.The warehouse is worth $210,000,but is subject to a mortgage of $40,000 which Laurie will assume.Trey's basis in the warehouse is $120,000.Laurie's basis in the warehouse received will be

Accepted Answer

A) $150,000. 
B) $170,000. 
C) $190,000. 
D) $210,000. 
A) $150,000. 
B) $170,000. 
C) $190,000. 
D) $210,000.

Question 5

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV.The acquired land is to be held for investment and the motorcycle is for personal use.What is the amount of recognized gain?

Accepted Answer

A) $0 
B) $10,000 
C) $20,000 
D) $30,000 
A) $0 
B) $10,000 
C) $20,000 
D) $30,000

Question 6

If the taxpayer elects to defer the gain on an involuntary conversion,the holding period of the replacement property begins on the date of purchase.

Accepted Answer

A) True 
 B)False

Question 7

On May 1 of this year,Ingrid sold her personal residence for $250,000.Commissions on the sale were $20,000.Ingrid also incurred $10,000 of costs for painting and repairs,which were all completed and paid for two weeks prior to the sale of her home.Ingrid's basis in her old home was $180,000.Ingrid's realized gain upon the sale of her first home is

Accepted Answer

A) $0. 
B) $40,000. 
C) $50,000. 
D) $70,000. 
A) $0. 
B) $40,000. 
C) $50,000. 
D) $70,000.

Question 8

Jason owns a warehouse that is used in business.The FMV of the warehouse is $200,000 (basis $120,000),and the warehouse is subject to a mortgage of $40,000.Jason exchanges the warehouse for land valued at $150,000.The other party also pays him $10,000 cash and assumes the mortgage on the warehouse.Jason's basis in the land received will be

Accepted Answer

A) $120,000. 
B) $150,000. 
C) $180,000. 
D) $200,000. 
A) $120,000. 
B) $150,000. 
C) $180,000. 
D) $200,000.

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.Assuming the proper election is made to defer gain,Stephanie's basis in the new building will be

Accepted Answer

A) $175,000. 
B) $180,000. 
C) $200,000. 
D) $210,000. 
A) $175,000. 
B) $180,000. 
C) $200,000. 
D) $210,000.

Question 11

If related taxpayers exchange property qualifying for a like-kind exchange,the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements is not correct regarding the compliance requirements of an involuntary conversion?

Accepted Answer

A) The taxpayer elects the deferral by not reporting the gain as income for the first year in which the gain is realized although all relevant information regarding the event will be reported. 
B) A taxpayer who recognized the full gain and paid the taxes can later file a refund claim to elect the deferral if qualified property is acquired before the expiration of the replacement period. 
C) A taxpayer elects to defer the full gain in the year the gain is realized (year one),and no gain is reported on that year's tax return.Qualified replacement property is acquired in the following year (year two),but the full insurance proceeds are not spent so some gain must be recognized.The partial gain recognition will be reported on the tax return for year two. 
D) A taxpayer properly elected to defer the full realized gain in year one and provides appropriate information on the replacement property.The taxpayer cannot later revoke the election and designate a different property as the replacement property. 
A) The taxpayer elects the deferral by not reporting the gain as income for the first year in which the gain is realized although all relevant information regarding the event will be reported. 
B) A taxpayer who recognized the full gain and paid the taxes can later file a refund claim to elect the deferral if qualified property is acquired before the expiration of the replacement period. 
C) A taxpayer elects to defer the full gain in the year the gain is realized (year one),and no gain is reported on that year's tax return.Qualified replacement property is acquired in the following year (year two),but the full insurance proceeds are not spent so some gain must be recognized.The partial gain recognition will be reported on the tax return for year two. 
D) A taxpayer properly elected to defer the full realized gain in year one and provides appropriate information on the replacement property.The taxpayer cannot later revoke the election and designate a different property as the replacement property.

Question 13

The building used in Tim's business was condemned by the city of Lafayette.Tim received a condemnation award of $125,000.He paid $1,200 in lawyer's fees and $800 for an appraisal of the property.Tim's adjusted basis in the building was $60,000.Tim reinvests in similar property costing $110,000,and Tim makes the proper election regarding the property.What is the amount of Tim's realized (not recognized)gain on the condemnation?

Accepted Answer

A) $0 
B) $50,000 
C) $63,000 
D) $65,000 
A) $0 
B) $50,000 
C) $63,000 
D) $65,000

Question 14

All of the following conditions would encourage a taxpayer to avoid like-kind exchange treatment on the disposition of an otherwise qualifying asset except

Accepted Answer

A) expected lower tax rates in the future. 
B) the availability of net operating loss carryovers. 
C) the disposition of a capital gain asset when the taxpayer has a capital loss carryover. 
D) a realized loss on the asset disposed of. 
A) expected lower tax rates in the future. 
B) the availability of net operating loss carryovers. 
C) the disposition of a capital gain asset when the taxpayer has a capital loss carryover. 
D) a realized loss on the asset disposed of.

Question 15

If property is involuntarily converted into similar property,the basis and holding period of the converted property carry over to the basis and holding period of the replacement property.

Accepted Answer

A) True 
 B)False

Question 16

According to Sec.121,individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for

Accepted Answer

A) at least five years immediately before the sale date. 
B) at least one year of the three-year period before the sale date. 
C) at least two years of the five-year period before the sale date. 
D) at least five years of the ten-year period before the sale date. 
A) at least five years immediately before the sale date. 
B) at least one year of the three-year period before the sale date. 
C) at least two years of the five-year period before the sale date. 
D) at least five years of the ten-year period before the sale date.

Question 17

Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash.Landry held the original land for investment purposes and will do the same with the new parcel.Due to the exchange,Landry will recognize

Accepted Answer

A) $10,000 gain. 
B) $5,000 gain. 
C) $5,000 loss. 
D) $0. 
A) $10,000 gain. 
B) $5,000 gain. 
C) $5,000 loss. 
D) $0.

Question 18

Pamela owns land for investment purposes.The land is worth $300,000 (basis of $260,000 to Pamela).Pamela exchanges the land,plus $20,000 cash,for a warehouse to be used in her business.The FMV of the warehouse is $400,000,but the warehouse is subject to a mortgage of $80,000,which is assumed by Pamela.Pamela must recognize a gain of

Accepted Answer

A) $0. 
B) $40,000. 
C) $120,000. 
D) $140,000. 
A) $0. 
B) $40,000. 
C) $120,000. 
D) $140,000.

Question 19

Real property exchanged for personal property,both held for productive use in a business,qualifies as a like-kind exchange.

Accepted Answer

A) True 
 B)False

Question 20

The holding period of like-kind property received in a nontaxable exchange begins on the day of the exchange.

Accepted Answer

A) True 
 B)False

Exam 28: Property Transactions: Nontaxable Exchanges

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

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.

Gena exchanges land held as an investment with a $60,000 basis for other land with a $80,000 FMV and a motorcycle with a $10,000 FMV.The acquired land is to be held for investment and the motorcycle is for personal use.What is the amount of recognized gain?

If the taxpayer elects to defer the gain on an involuntary conversion,the holding period of the replacement property begins on the date of purchase.

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 related taxpayers exchange property qualifying for a like-kind exchange,the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.

Which of the following statements is not correct regarding the compliance requirements of an involuntary conversion?

All of the following conditions would encourage a taxpayer to avoid like-kind exchange treatment on the disposition of an otherwise qualifying asset except

If property is involuntarily converted into similar property,the basis and holding period of the converted property carry over to the basis and holding period of the replacement property.

According to Sec.121,individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for

Landry exchanged land with an adjusted basis of $50,000 for another parcel of land worth $35,000 plus $10,000 of cash.Landry held the original land for investment purposes and will do the same with the new parcel.Due to the exchange,Landry will recognize

Real property exchanged for personal property,both held for productive use in a business,qualifies as a like-kind exchange.

The holding period of like-kind property received in a nontaxable exchange begins on the day of the exchange.

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