Exam 12: Non-Recognition Transactions

Which of the following is/are correct regarding involuntary conversions? I. Gains may be deferred if the property involuntarily converted is replaced with property that is similar to or related in service or use to the converted property. II. Deferral of gains is elective only if direct conversion is made into similar property.

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 is/are correct regarding the sale of a principal residence? I. A taxpayer who is single and fails to meet the ownership or use test due to change in employment is entitled to a pro rata share of the $250,000 exclusion. II. A single taxpayer can exclude up to $250,000 of the gain on the sale of a vacation home.

Which of the following can be income deferral transactions? I. Sale of municipal bonds. II. Involuntary conversions of property.

Carrie owns a business building with an adjusted basis of $95,000 and an appraised fair market value of $98,000. The city of Millerville condemns the property for a new highway. The condemnation award is $98,000. Carrie invests $90,000 of the proceeds into a new building on the other side of the city. What is the gain or loss that Carrie must recognize due to the transactions?

Karen owns a commercial office building with a fair market value of $140,000. She purchased the building as an investment for $102,000 in 2003. She has claimed $18,000 in depreciation deductions. Karen trades the building for an apartment complex. The apartment complex has a value of $140,000, and the exchange qualifies for like-kind deferral treatment. What is Karen's basis in the apartment complex?

Violet exchanges investment real estate with Russell. Violet's adjusted basis in her two-year old property is $280,000. The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell assumes that debt. Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange. Russell pays Violet enough in cash to balance the exchange. What is Russell's recognized gain loss) on the exchange?

Simon exchanged his Mustang for Michael's Econovan so that he could go hunting. The exchange does not qualify as a like-kind exchange since the assets are personal.

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 has 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's basis in the acquired machine is $10,000. II. Norman recognizes a loss of $3,000 on the exchange.

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.

Grant exchanges an old pizza oven from his business for a new oven. In addition to the old oven, which had a basis of $10,000, Grant pays $4,000 cash and takes out a loan on the new oven for $6,000. The new oven is valued at $22,000. What is Grant's basis in the new oven?

Robbie and Mike exchange machinery in a qualified like-kind exchange. Robbie's old machine, which originally cost $42,000, has an adjusted basis of $26,000. His old machine is worth $32,000. Since the machine Mike is trading is worth only $27,000 Mike's basis is $18,000), Mike will even up the exchange by giving Robbie $5,000 in cash. a. What is Robbie's realized gain loss) on the machine? b. What is Robbie's recognized gain loss) on the machine? c. What is the character of Robbie's gain or loss on the machine? d. What is Robbie's basis in his new machine?

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.

Rosilyn trades her old business-use car with an adjusted basis of $13,000 and an outstanding loan liability balance of $2,000 for a new business-use car valued at $9,000 plus $3,000 cash from Bob's Auto Sales and Loan Company. Bob assumes Rosilyn's loan balance. What is Rosilyn's recognized gain on the transaction?

Nancy purchased her houseboat six years ago for $35,000. She has lived in the houseboat since she purchased it. A friend has offered $62,000 for the houseboat. If she sells it, she will be able to exclude the gain.

Sarah exchanges investment real estate with Russell. Sarah's adjusted basis in her two-year old property is $280,000. The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged. Russell assumes that debt. Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange. Russell pays Sarah enough in cash to balance the exchange. What is Russell's basis in the new land?

Roscoe receives real estate appraised at $200,000 and cash of $10,000 from Cathy in exchange for Roscoe's investment realty with a basis of $170,000. Roscoe plans to hold the new realty for investment. What is the amount realized for the property given up by Roscoe?

Compare the deferral of recognition of losses resulting from an involuntary conversion with the deferrals for like- kind exchanges.

An involuntary conversion occurs whenever a loss but not a gain) is realized from a transaction that occurs against the taxpayer's will.

Wendell owns 115 acres of land with a fair market value of $57,000. He purchased the land as an investment for $35,000 in 1993. Wendell trades the land for a 122-acre parcel adjacent to other property he owns. The 122 acres has a value of $57,000, and the exchange qualifies for like-kind deferral treatment. What is Wendell's recognized gain on the exchange?