Exam 11: Property Transactions: Nonrecognition of Gains and Losses

Anderson Company exchanged land used in its business for another parcel of land with a fair market value of $160,000. In addition, Anderson received $40,000 in cash. Anderson will use the new parcel of land in its business. fte land that Anderson gave in exchange had an adjusted basis of $230,000 at the time of the exchange. What is Anderson's adjusted basis in the new land it received in the exchange?

Real property where Paul Peterson's warehouse is located is completely destroyed by fire on November 23, 2012. Paul purchased the warehouse in 2006 for $800,000; its adjusted basis in the warehouse is $420,000. He receives $1 million from the insurance company on March 5, 2013. What amount must Paul reinvest in qualified replacement property and be able to defer the entire $580,000 realized gain from the condemnation?

Henry Higgins exchanged property with a basis of $100,000 and a fair market value of $125,000 for other similar property with a fair market value of $160,000. He also gave up 100 shares of Bookbinder, Inc. stock worth $25,000 with an adjusted basis of $15,000. What is Henry's realized gain and his recognized gain?

Ed Edmonds exchanged a business truck with an adjusted basis of $320,000 for another business truck with a fair market value of $20,000, a boat with a fair market value of $6,000, and $2,000 cash. What is the basis of the new truck?

fte exchange of land for an office building qualifies as like kind property, but the exchange of a vacant lot for a warehouse would not.

A corporation exchanges machinery plus $20,000 cash for new machinery worth $34,000. At the time of the exchange, the corporation's adjusted basis in the machine it exchanges is $16,000 and its fair market value is $14,000. What amount will the corporation recognize on the exchange and what will be its depreciable basis in the new machine?

Rose Rambler, a calendar-year taxpayer, owned a rental building that was condemned by the state on April 30, 2012. fte state paid Rose the fair market value of the property on Jun 29, 2012. Rose must replace her property by December 31, 2015, to avoid reporting the gain.

If the taxpayer's investment in an apartment building is condemned by the local government, the taxpayer can replace it with any other rental property; it does not have to be another apartment building.

Bonilla Company's office building was destroyed by a tornado. fte insurance company paid Bonilla $600,000 for the destruction of the office building within 30 days after the tornado. At the time of the tornado, Bonilla had an adjusted basis of $240,000 in the office building. Within six months after the tornado, Bonilla bought a new office building for $500,000 by paying $320,000 in cash and signing a mortgage note for $180,000. What is the minimum amount of gain that Bonilla must recognize on the involuntary conversion of its office building?

If boot is received in a like-kind exchange, realized losses are not recognized but realized gains may be recognized.

Ben Benson, single, sold his home that he had owned for 20 years for $695,000. He purchased it for $140,000 and made $45,000 of capital improvements on the home during his time of ownership. How much gain is excluded?

Which of the following is not an involuntary conversion?

Bill Binkley's office building with a basis of $480,000 is condemned by the state. fte state awards him $600,000 and he then purchases a new office building for $520,000. What is Bill's recognized gain?

If an exchange of property involves the assumption of a liability by the transferee it is treated like boot received by the transferee.

Arthur Austen's property having an adjusted basis of $68,000 is condemned by the state government. fte authorities replace his property with other qualified property which cost them $100,000. What is Arthur's recognized gain?

Bill Binkley's office building with a basis of $480,000 is condemned by the state. fte state awards him $600,000 and he then purchases a new office building for $520,000. What is Bill's basis in the new residence?

A widowed taxpayer's period of ownership of a residence includes the period the deceased spouse owned and used the property before death.

Any excluded gain on the sale of the residence reduces the basis of the new residence.

A liability assumed by a transferee is considered boot received by the transferor.

Leonard Longstreet owns a rental building with an adjusted basis of $300,000 and a fair market value of $280,000. In July 2012, the state condemned the property for a highway project and paid him $280,000, which he immediately reinvested in a similar rental property. Leonard may recognize a loss.