Exam 28: Property Transactions: Nontaxable Exchanges

William and Kate married in 2019 and purchased a new home together.Each had owned and lived in separate residences for the past 5 years.William's adjusted basis in his old residence was $200,000; Kate's adjusted basis in her old residence was $120,000.In late 2019,William sells his residence for $500,000 while Kate sells her residence for $190,000.What is the total gain to be excluded from these transactions in 2019?

In the case of married taxpayers,an individual may claim the Sec.121 exclusion even if the individual's spouse used the exclusion within the past two years.

When the cost of replacement property is less than the amount realized on an involuntary conversion,gain will be recognized.The recognized gain will be equal to the amount realized over the cost of the replacement property,but not more than the total realized gain.

The involuntary conversion provisions which allow deferral of gain are mandatory.

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.

Nana is a self-employed consultant.For the past five years,she has used an extra bedroom (15% of the house)in her home as a qualifying home office and deducted $9,000 of depreciation expense.This year she sells the house for $740,000.The house cost $500,000.Nana is single.She will recognize gain on the sale of the house of

Mitchell and Debbie Dixon,a married couple,sell their personal residence to Sophie.Sophie pays $225,000 and assumes their $70,000 mortgage.To make the sale,the Dixons pay $4,000 in commissions and $1,000 in legal costs.The couple has owned and lived in the house for seven years and their tax basis is $125,000.What is the amount of gain recognized on the sale?

Juan's business delivery truck is destroyed in an accident.He paid $40,000 for the truck,and $30,000 of depreciation has been deducted during its period of use.The insurance company pays Juan $32,000 due to the accident.What is the minimum amount that Juan must spend on a new truck to avoid any gain recognition?

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

The building used in Manuel's business was condemned by the city of Mobile.Manuel received a condemnation award of $220,000.He paid $800 in lawyer's fees and $600 for an appraisal of the property.Manuel's adjusted basis in the building was $120,000.Manuel reinvests in similar property costing $200,000,and Manuel makes the proper election regarding the property.Manuel's basis in the new building is

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?

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

Eduardo owns land held for investment purposes that has a basis of $250,000.He exchanges the land,plus $40,000 of cash,for a warehouse he will hold as rental property.The warehouse is worth $410,000,but is subject to a mortgage of $70,000 which Eduardo will assume.The gain realized by Eduardo is

All of the following are true except

If there is a like-kind exchange of property between related parties,how long do they have to wait to dispose of the property received in order to avoid having to recognize any gain on the exchange?

Realized gain or loss must be recognized unless a specific Code section provides for nonrecognition treatment.

Bob and Elizabeth Brown,a married couple,sell their personal residence to Tamel.Tamel pays $660,000 and assumes their $90,000 mortgage.To make the sale,the Browns pay $20,000 in commissions and $10,000 in legal costs.The couple has owned and lived in the house for seven years and their tax basis is $200,000.What is the amount of gain recognized on the sale?