Exam 12: Nonrecognition Transactions

A fire destroyed Jimmy's Teeshirt Shop.The business had an adjusted basis of $500,000 and a fair market value of $600,000 before the fire.Jimmy received $550,000 from the insurance company and opened a new Teeshirt Shop with the proceeds. I.Jimmy has a realized gain of $50,000. II.Jimmy has a recognized gain of $50,000.

Which of the following exchanges of property are like-kind exchanges? I.Convenience store owner trades several cases of potato chips for a cash register. II.A completely rented apartment building traded for a parts supply warehouse to use in business.

Match each statement with the correct term below. -Involuntary conversion

Which of the following qualify as a like-kind exchange? -Coke-Cola bonds for General Foods bonds.

Which of the following exchanges of property are like-kind exchanges? I.Common stock of Intel traded for preferred stock of Intel. II.Principal residence traded for 20 acres of undeveloped investment land.

Under the like-kind exchange rules,when like-kind property is traded for like-kind property,a loss on a trade-in is:

Norm acquired office equipment for his business in 2011 at a cost of $10,000.After two years of use,Norm exchanges the equipment for different equipment with a fair market value of $7,000.MACRS depreciation on the original equipment was $4,753 The exchange qualifies as a like-kind exchange.Immediately after the exchange Norm sells the new equipment for $7,000 cash.What is the amount and character of the gain recognized?

Jason and Mark exchange equipment each use in their business.In the trade,Jason receives Mark's equipment that is worth $20,000.Mark also assumes the $10,000 loan Jason had on the equipment.Jason purchased his equipment for $25,000 and had taken $12,000 of depreciation on the equipment up to the date of the exchange.Mark's adjusted basis in his equipment is $16,000 on the date of the exchange. a.What is Jason's realized gain on the exchange? b.What are the amount and the character of the gain Jason must recognize on the exchange? c.What is Jason's basis in the equipment acquired in the exchange?

Fran owns a commercial office building with a fair market value of $850,000.She purchased the building as an investment for $815,000 in 2006.She has deducted $115,000 in depreciation.Fran trades the building for an apartment complex.The apartment complex has a value of $850,000,and the exchange qualifies for like-kind deferral treatment.What is Fran's recognized gain on the exchange?

Which of the following qualify as a like-kind exchange? -An airplane for a duplex apartment.

Benito owns an office building he purchased five years ago at a cost of $600,000.The property is currently worth $800,000,has an adjusted basis of $300,000 and is encumbered by a $400,000 mortgage. Mitch owns an apartment complex he purchased three years ago at a cost of $600,000.The property is currently worth $750,000,has an adjusted basis of $500,000 and is encumbered by a $325,000 mortgage. Benito and Mitch would like to exchange the properties and their respective mortgages.Answer the following questions regarding the exchange. a.Any boot is to be paid in cash. Who must pay the boot and how much must be paid? b.Does Benito have to recognize any gain on the exchange? If so, indicate the amount of gain to be recognized and why it must be recognized.

When two qualified assets are exchanged and their fair market values are not equal,additional nonqualifying property referred to as "boot" can be used to equalize the transaction without disqualifying the nonrecognition transaction.

Which of the following qualify as a like-kind exchange? -Computer for delivery truck.

Which of the following qualify as a like-kind exchange? -Office building for office equipment.

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

Daisy's warehouse is destroyed by a tornado.The warehouse has an adjusted basis of $130,000 when destroyed.Daisy receives an insurance reimbursement check for $150,000 and immediately reinvests $120,000 of the proceeds in a new warehouse.What are Daisy's recognized gain or (loss)and her basis in the replacement warehouse? Recognized New Gain (loss) Basis a. \- 0- \ 120,000 b. \ 20,000 \ 120,000 c. \ 30,000 \ 110,000 d. \ 10,000 \ 130,000 e. \ 20,000 \ 100,000

Which of the following qualify as a like-kind exchange? -Inventory for inventory.

Norman exchanges a machine he uses in his pool construction business for a used machine worth $6,000 to use in the same business.He purchased the machine 3 years ago for $22,000 and had taken depreciation of $9,000 on the machine.In the exchange,Norman also receives $3,000 of cash.As a result of the exchange, I.Norman realizes a loss of $4,000 on the exchange. II.Norman's basis in the acquired machine is $13,000.