Exam 12: Nonrecognition Transactions

Donald and Candice sell their home for $695,000,incurring selling expenses of $30,000.They purchased the residence for $125,000 and made capital improvements totaling $20,000 during the 20 years they lived there.What is their realized gain and recognized gain on the sale? Realized Recognized a. \ 665,000 \ 20,000 b. \ 520,000 \ -0- c. \ 520,000 \ 20,000 d. \ 540,000 \ 40,000 e. \ 520,000 \ 270,000

The recognition of a loss realized on an involuntary conversion is mandatory.

The deferral of a gain realized on an involuntary conversion is mandatory.

Match each statement with the correct term below. -Boot

Which of the following qualify as replacement property under the involuntary conversion rules? I.Smooth Yogurt Company's warehouse for storing its yogurt curds is condemned by the port authority.The warehouse will be replaced with a new office building in a neighboring community. II.Smooth Yogurt Company's other warehouse,which was fully leased to another company,is destroyed by a tornado.The warehouse will be replaced with a rental office building adjacent to the company's new office building and will be leased to various tenants.

Simon exchanged his Mustang for Michael's Econovan so that he could go hunting.The exchange does not qualify as a like-kind exchange since the assets are personal.

Which of the following can be income deferral transactions? I.Sale of municipal bonds. II.Involuntary conversions of property.

Grant exchanges an old pizza oven from his business for a new oven.In addition to the old oven,which had a basis of $10,000,Grant pays $4,000 cash and takes out a loan on the new oven for $6,000.The new oven is valued at $22,000.What is Grant's basis in the new oven?

Which of the following qualify as a like-kind exchange? -Office copier for an office fax machine.

Belinda exchanges investment real estate with Russell.Belinda's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Belinda enough in cash to balance the exchange.What is Belinda's basis in the new land?

Which of the following qualifies as a like-kind exchange of property? I.Registered trademark for a copyright. II.A 2009 Chevy,business-use automobile for a 2010 Ford,business-use automobile

If related parties complete a qualified like-kind exchange,how long must the parties wait before disposing of the property exchanged to insure that any realized gain on the transfer is not recognized?

Rosilyn trades her old business-use car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company.Bob assumes Rosilyn's loan balance.How much boot does Rosilyn receive in the transaction?

Dominic and Lois sell their home for $775,000,incurring selling expenses of $40,000.They had purchased the residence in 1990 for $185,000 and made capital improvements totaling $45,000.They buy a new residence for $310,000.What is their realized gain and recognized gain on the sale? What is their basis in the new house?

Which of the following qualify as a like-kind exchange? -A Cadillac automobile used 100% for business for a Ford Mustang automobile used 100% for business.

Rosilyn trades her old business-use luxury car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use economy car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company.Bob assumes Rosilyn's loan balance.What is Rosilyn's amount realized on the transaction?

Robbie and Mike exchange machinery in a qualified like-kind exchange.Robbie's old machine,which originally cost $42,000,has an adjusted basis of $26,000.His old machine is worth $32,000.Since the machine Mike is trading is worth only $27,000 (Mike's basis is $18,000),Mike will even up the exchange by giving Robbie $5,000 in cash. a.What is Robbie's realized gain (loss) on the machine? b.What is Robbie's recognized gain (loss) on the machine? c.What is the character of Robbie's gain or loss on the machine? d.What is Robbie's basis in his new machine?

Randy owns 115 acres of land with a fair market value of $57,000.He purchased the land as an investment for $35,000 in 1993.Randy trades the land for a 122-acre parcel adjacent to other property he owns.The 122 acres has a value of $57,000,and the exchange qualifies for like-kind deferral treatment.What is Randy's realized gain on the exchange?

Robert trades an office building located in Tennessee to John for an apartment complex located in New Jersey.Details of the two properties: Robert John Tennessee N. Jersey Fair Market Value \ 9,000,000 \ 4,000,000 Adjusted Basis 3,000,000 3,000,000 Liabilities transferred with property 2,000,000 -0- In addition,John pays Robert $3,000,000 cash as part of this transaction.What is the gain (loss)recognized by Robert in this transaction and what is his basis in the New Jersey property? Gain Recognized Adjusted Basis a. \ 6,000,000 \ 4,000,000 b. \ 5,000,000 \ 3,000,000 c. \ 3,000,000 \ 2,000,000 d. \ 5,000,000 \ 4,000,000 e. Some other amounts

The general mechanism used to defer gains and losses from a transaction includes certain adjustments to the basis of the replacement property.These adjustments include I.subtracting deferred losses. II.adding deferred gains.