Exam 15: Property Transactions: Nontaxable Exchanges

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

Danielle, a calendar year taxpayer, lists her principal residence with a realtor on February 7, 2019, enters into a contract to sell on July 12, 2019, and sells (i.e., the closing date) the residence on August 1, 2019.The realized gain on the sale is $225,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the Danielle as the principal residence for at least two years during the prior five-year period?

An involuntary conversion results from the destruction (complete or partial), theft, seizure, requisition or condemnation, or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Leonore exchanges 5,000 shares of Pelican, Inc., stock for 2,000 shares of Blue Heron, Inc., stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0, and her adjusted basis for the Blue Heron stock is $300,000.

Terry exchanges real estate (acquired on August 25, 2013) held for investment for other real estate to be held for investment on September 1, 2019.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, 2013.

In October 2019, Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2008 while Jerry purchased his in 2011.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?

To qualify for the § 121 exclusion, the property must have been used by the taxpayer for the five years preceding the date of sale and owned by the taxpayer as the principal residence for the last two of those years.

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

Abby exchanges an SUV that she has held for personal use plus $24,000 for a new SUV that she will use exclusively in her business.This exchange qualifies for nontaxable exchange treatment.

During 2019, Sam and Libby, a married couple, decided to sell their residence, which had a basis of $200,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers, they had the inside painted in April at a cost of $5,000 and paid for the work immediately.They sold the house in May for $800,000.Broker's commissions and other selling expenses amounted to $50,000.They purchased a new residence in July for $400,000.What is the recognized gain and the adjusted basis of the new residence?

Kendra owns a home in Atlanta.Her company transfers her to Chicago on January 2, 2019, and she sells the Atlanta house in early February 2019.She purchases a residence in Chicago on February 3, 2019.On December 15, 2019, Kendra's company transfers her to Los Angeles.In January 2020, she sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period, § 121 treatment does not apply to the sale of the second home.

The basis of boot received in a like-kind exchange is its fair market value unless the realized gain is a smaller amount.

To qualify as a like-kind exchange, real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence) apply.

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

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion), makes the appropriate election, and the amount reinvested in replacement property is less than the amount realized, realized gain is:

The nonrecognition of gains and losses under § 1031 is mandatory for gains and elective for losses.

Molly exchanges land (adjusted basis of $85,000; fair market value of $78,000) used in her business and common stock held for investment (adjusted basis of $10,000; fair market value of $15,000) for a single parcel of land (fair market value of $93,000) to be used in her business in a like-kind exchange.What is Molly's recognized gain or loss?

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.

Pam exchanges a rental building, which has an adjusted basis of $520,000, for investment land which has a fair market value of $700,000.In addition, Pam receives $100,000 in cash.What is the recognized gain or loss and the basis of the investment land?