Exam 15: Property Transactions: Nontaxable Exchanges

Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago, she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city, she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

Paula inherits a home on July 1, 2019 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.Paula decides to sell her old principal residence, which she has owned and occupied for nine years, with an adjusted basis of $125,000 and move into the inherited home.On September 16, 2019, she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool, deck, pool house, and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1, 2019.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

Pat owns a 1965 Ford Mustang that he uses for personal use.He purchased it four years ago for $22,000, and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

Which of the following statements is correct?

Brian and Becca have been married and living together in Brian's home for 6 years.He lived in the home alone for 20 years prior to their marriage.They sell the home, which has an adjusted basis of $120,000, for $700,000.Brian and Becca plan to use the § 121 exclusion (exclusion of gain on sale of principal residence).In Becca's prior marriage to Dan, Dan sold his principal residence and used the § 121 exclusion.Becca and Dan filed joint returns during their seven years of marriage.They had lived in Dan's house throughout their marriage.Dan's sale had occurred one year prior to the divorce.Brian and Becca purchase a replacement residence for $650,000 one month after the sale of their home.What is the recognized gain and basis for the new home?

Patty's factory building, which has an adjusted basis of $475,000, is destroyed by fire on April 8, 2019.Insurance proceeds of $500,000 are received on June 1, 2019.She has a new factory building constructed for $490,000, which she occupies on October 1, 2019.Assuming Patty's objective is to minimize the tax liability, calculate her recognized gain or loss and the basis of the new factory building.

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion) and the amount reinvested in replacement property exceeds the amount realized, the basis of the replacement property is: