Exam 15: Property Transactions: Nontaxable Exchanges

Sidney, a calendar year taxpayer, owns a building adjusted basis $450,000) in Columbus, OH, in which he conducts his retail computer sales business. The building is destroyed by fire on December 12, 2018, and two weeks later he receives insurance proceeds of $600,000. Due to family ties, Sidney decides to move to Columbia, SC. He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2, 2019. By electing § 1033, Sidney has no recognized gain and a basis in the new building of $450,000 $600,000 cost - $150,000 postponed gain).

Carl sells his principal residence, which has an adjusted basis of $150,000 for $200,000. He incurs selling expenses of $20,000 and legal fees of $2,000. He had purchased another residence one month prior to the sale for $380,000. What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion exclusion of gain on sale of principal residence)?

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?

In determining the basis of like-kind property received, postponed losses are:

If the taxpayer qualifies under § 1033 nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is:

Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.

Lola owns land as an investor. She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory. The exchange does qualify for like-kind exchange treatment.

At a particular point in time, a taxpayer can have two principal residences for § 121 exclusion purposes.

To be eligible to elect postponement of gain treatment for an involuntary conversion, what are the three tests for qualifying replacement property?

Joyce, a farmer, has the following events occur during the tax year. Which of the events qualify as an involuntary conversion under § 1033 nonrecognition of gain from an involuntary conversion)?

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

If a taxpayer reinvests the net proceeds amount received - related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period, it is possible to defer the recognition of the realized gain.

Discuss the relationship between the postponement of realized gain under § 1031 like-kind exchanges) and the adjusted basis and holding period for the replacement property.

Melissa, age 58, marries Arnold, age 50, on June 1, 2018. Melissa decides to sell her principal residence on August 1, 2018, which she has owned and occupied for the past 30 years. Arnold has never owned a house. However, while he was married to Kelly who died 6 months prior to his marriage to Melissa, Kelly used the § 121 election on the sale of her residence in January 2016 to reduce her realized gain from $123,000 to $0. Kelly used the sales proceeds to pay off Arnold's gambling debts. Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?

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

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Byron, who lived in New Hampshire, acquired a personal residence ten years ago when he was 52 years old. During this period he has occupied the residence for only eight months out of 12) each year due to winter vacations in Florida. Is Byron eligible for exclusion of gain under § 121?

Milt's building which houses his retail sporting goods store is destroyed by a flood. Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood. Both Milt and Sandra receive insurance proceeds that result in a realized gain. Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 nonrecognition of gain from an involuntary conversion).

Which, if any, of the following exchanges qualifies for nonrecognition treatment as a § 1031 like-kind exchange?

In October 2018, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange. Ben bought his real estate in 2007 while Jerry purchased his in 2010. In addition to the realty, Ben receives Pearl, Inc. stock worth $10,000 from Jerry. Ben's realized gain is $30,000. On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?