Exam 7: Basis, Gain and Loss, and Nontaxable Exchanges

Paul sells property with an adjusted basis of $45,000 to his daughter Dean, for $38,000.Dean subsequently sells the property to her brother, Preston, for $38,000.Three years later, Preston sells the property to Hun, an unrelated party, for $50,000.What is Preston's recognized gain or loss on the sale of the property to Hun?

What is the difference between the depreciation (or cost recovery) allowed and the depreciation (or cost recovery) allowable and what effect does each have on the adjusted basis of property?

Which of the following satisfy the time period requirement for postponement of gain as a § 1033 (nonrecognition of gain from an involuntary conversion) involuntary conversion?

An exchange of two items of personal property (personalty) that belong to different general business asset classes qualifies for nonrecognition under § 1031 as long as both properties are used in the taxpayer's trade or business.

Define an involuntary conversion.

Gil's office building (basis of $225,000 and fair market value $275,000) is destroyed by a hurricane.Due to a 30% co-insurance clause, Gil receives insurance proceeds of $192,500 two months after the date of the loss.One month later, Gil uses the insurance proceeds to purchase a new office building for $275,000.His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

If property that has been converted from personal use to business use has appreciated in value, its basis for gain will be the same as the basis for loss.

Broker's commissions, legal fees, and points paid by the seller reduce the seller's amount realized.

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

Define fair market value as it relates to property transactions.

A factory building owned by Amber, Inc.is destroyed by a hurricane.The adjusted basis of the building was $400,000 and the appraised value was $425,000.Amber receives insurance proceeds of $390,000.A factory building is constructed during the nine-month period after the hurricane at a cost of $450,000.What is the recognized gain or loss and what is the basis of the new factory building?

What effect do the assumption of liabilities have on a § 1031 like-kind exchange?

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.

Terry exchanges real estate (acquired on August 25, 2011) held for investment for other real estate to be held for investment on September 1, 2017.None of the realized gain of $10,000 is recognized, and Terry's adjusted basis for the new real estate is a carryover basis of $80,000.Consequently, Terry's holding period for the new real estate begins on August 25, 2011.

If insurance proceeds are received for property used in a trade or business, a casualty transaction can result in recognized gain, but cannot result in a recognized loss.

Livestock of different sexes can qualify for like-kind exchange treatment if the livestock has been held for over 24 months.

If the alternate valuation date is elected by the executor in 2017, the total basis of inherited property will be more than what it would have been if the primary valuation date and amount had been used.

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)?

Carlton purchases land for $550,000.He incurs legal fees of $10,000 and broker's commission of $28,000 associated with the purchase.He subsequently incurs additional legal fees of $25,000 in having the land rezoned from agricultural to residential.He subdivides the land and installs streets and sewers at a cost of $800,000.What is Carlton's basis for the land and the improvements?

The surrender of depreciated boot (fair market value is less than adjusted basis) in a like-kind exchange can result in the recognition of loss.