Exam 11: Property Transactions: Nonrecognition of Gains and Losses

Gary and Gerdy Gray purchased a home for $125,000 on September 15, 2010. On October 7, 2011 they were divorced, and as part of the divorce agreement, the home was transferred to Gerda who sold the home on October 18, 2012 for $350,000. How much can Gerda exclude?

Lyle Lawrence transfers an apartment building with an adjusted basis of $300,000 and a fair market value of $480,000 for Carl Cushions apartment building (adjusted basis $280,000) with a fair market value of $400,000. Lyle's mortgage of $120,000 is assumed by Carl, whose mortgage of $40,000 is assumed by Lyle. What is the realized and recognized gain or loss for Lyle and Carl, and what are their bases in their acquired buildings?

If a taxpayer becomes physically or mentally incapable of self-care, the taxpayer must have owned and used the residence as a principal residence for a period of at least 18 months during the five years preceding the sale in order to consider the residence as being used while in a nursing home.

Jeff Jordan exchanges a truck used in his business plus $20,000 cash for a new truck with a fair market value of $34,000. His adjusted basis in the old truck is $16,000 and its fair market value is $14,000. What is Jeff's recognized gain or loss and the basis in the new truck?

Susan Short's office building is destroyed in a fire. fte adjusted basis in the building is $200,000 and its fair market value is $350,000. fte insurance company reimburses Susan $330,000 for its loss, and she immediately purchases a new office building for $310,000. What is Susan's recognized gain and adjusted basis in the new office building?

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 basis in the new property?

Taxpayers that realize a loss on a like-kind exchange will immediately derive tax benefits associated with deducting the loss.

In a like-kind exchange, gains and losses are never recognized.

A taxpayer is required to own and occupy the residence three out of the last five years in order to qualify for the exclusion.

Melvin Monroe reads in the newspaper that the state highway department has decided to take his property for public use. He verifies the news by phoning an official of the highway department who is involved in the project acquiring this property. ftis is a threat of condemnation.

fte requirements for replacement property under a casualty and theft are less restrictive than for like-kind exchanges.

Hank Hands owns a sole proprietorship that charters various types of aircraft. Hank exchanged a helicopter with an adjusted basis of $156,000 used in his business for a smaller helicopter with a value of $142,000. On the exchange, Hank was relieved of an existing loan of $10,000 on the original helicopter and received $4,000 in cash. What is Hank's gain or loss on the trade?

Ron Ryder and Joe Jetty exchanged like-kind business property. Ron had an adjusted basis of $30,000 in his property (fair market value of $33,000). Joe's property had an adjusted basis of $21,000 and a fair market value of $23,000, and Joe gave Ron $10,000 in cash. Determine Ron's and Joe's realized gain or loss, recognized gain or loss, and the basis in their new property.

Brian Bush and Charles Chex exchange business machines. Brian gives Charles a machine with a basis of $3,500 (fair market value $3,000) plus $2,000 in cash. Charles gives Brian a machine with a basis of $5,000 and a fair market value of $5,000. What is Charles's recognized gain and his basis in the new machine?

Tom ftompson traded in a station wagon (used in his business) which had an adjusted basis of $7,700 for a new one costing $26,900. fte auto dealer allowed a trade-in allowance of $8,000 on the old station wagon and Tom paid $18,900 in cash. What is Tom's basis in the new station wagon?

Assume instead that in the preceding problem, as part of the divorce agreement, Gary retained ownership of the residence but the use of the home was granted to Gerda as long as Gary owns the residence. If Gary sells the residence on October 18, 2012 for $350,000, how much can Gary exclude?

Ed Evans traded in a large lathe used in his business with an adjusted basis of $7,000 for a smaller lathe valued at $8,000. In addition to the smaller lathe, Ed received $2,000 cash. Ed's recognized gain is $3,000.

David Drummond and Edward Engels exchange business cars. David gives Edward a car with a basis of $15,000 and a fair market value of $21,500. David receives from Edward a car with a basis of $12,500 (fair market value of $17,000) and $4,500 cash. What is David's recognized gain and basis in the new car?

Losses from involuntary conversions are never recognized.

Bobby and Betty Bennett sold for $450,000 in October of 2012 their residence that they had purchased in 2002 for $200,000. ftey made major capital improvements during their 10-year ownership totaling $40,000. What is their recognized gain?