Exam 15: Property Transactions: Nontaxable Exchanges

If boot is received in a § 1031 like-kind exchange, the recognized gain cannot exceed the realized gain.

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000) for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for six years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

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

Lily exchanges a building she uses in her rental business for a building owned by Kendall.She will use the building in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

Jared, a fiscal year taxpayer with a August 31 year-end, owns an office building (adjusted basis of $800,000) that was destroyed by fire on December 24, 2019.If the insurance settlement was $950,000 (received March 1, 2020), what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Joyce, a farmer, has the following events occur during the tax year.Which of the events qualifies for nonrecognition of gain from an involuntary conversion?

If the recognized gain on an involuntary conversion equals the realized gain because of a reinvestment deficiency, the basis of the replacement property will be more than its cost (cost plus realized gain).

The exchange of unimproved real property located in Topeka, KS, for improved real property located in Atlanta, GA, does not qualify as a like-kind exchange.

Section 1033 (nonrecognition of gain from an involuntary conversion) applies to both gains and losses.

On January 5, 2019, Warren sells his principal residence with an adjusted basis of $270,000 for $690,000.He has owned and occupied the residence for 15 years.He pays $35,000 in commissions and $2,000 in legal fees in connection with the sale.One month before the sale, Warren painted the exterior of the house at a cost of $5,000 and repaired various items at a cost of $3,000.On October 15, 2019, Warren purchases a new home for $600,000.On November 15, 2020, he pays $25,000 for completion of a new room on the house, and on January 14, 2021, he pays $15,000 for the construction of a pool.What is the Warren's recognized gain on the sale of his old principal residence and what is the basis for the new residence?

Lucinda, a calendar year taxpayer, owned a rental property with an adjusted basis of $312,000 in a major coastal city.Her property was condemned by the city government on October 12, 2019.To build a convention center, Lucinda eventually received qualified replacement property from the city government on March 9, 2020.This new property has a fair market value of $410,000. a.What is Lucinda's recognized gain or loss on the condemnation? b.What is her adjusted basis for the new property? c.If, instead of receiving qualifying replacement property, Lucinda was paid $410,000, what is the latest date that she can acquire qualifying replacement property?

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30, 2019.On January 11, 2020, the insurance company paid the owner $450,000.The fair market value of the building was $500,000, but under the co-insurance clause, the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12, 2020, that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

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.

Wyatt sells his principal residence in December 2019 and qualifies for the § 121 exclusion.He sells another principal residence in November 2020.Under no circumstance can Wyatt qualify for the § 121 exclusion on the sale of the second residence.

If a taxpayer reinvests the net proceeds (amount received minus 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.

If an election to postpone gain under § 1033 is made, the holding period of replacement property includes the holding period of the involuntarily converted 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?

During 2018, Ted and Judy, a married couple, decided to sell their residence, which had a basis of $300,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers, they had the outside painted in April at a cost of $6,000 and paid for the work immediately.They sold the house in May for $880,000.Broker's commissions and other selling expenses amounted to $53,000.Since they both are age 68, they decide to rent an apartment.They purchase an annuity with the net proceeds from the sale.What is the recognized gain?

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 boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized, the holding period for both the like-kind property and the boot received begins on the date of the exchange.