Exam 11: Property Transactions: Nonrecognition of Gains and Losses

Peter Paulson purchased a residence on February 19, 2010 for $180,000. On September 7, 2012, a tornado completely destroyed their home. fte home was insured for its replacement value and homes in Peter's area had appreciated greatly. He received proceeds of $420,000. How much does Peter include?

If Norman in the preceding problem had instead sold the home for $300,000, how much must Norman recognize?

fte exclusion on the sale of a personal residence is $500,000 for taxpayers filing jointly and as single individuals.

Jim Jones went to court to stop a state commission from acquiring his property to widen a state highway. fte court ruled for the state highway commission, whereupon the commission paid Jim the amount fixed by the court. Jim's property was involuntarily converted.

Taxpayers may elect out of the exclusion for sale of residence.

Calvin and Carolyn Coleman purchased a home in San Francisco for $375,000 on October 1, 2011. Calvin obtained a job in Portland, Oregon, and on December 1, 2012, the Colemans sold their home in San Francisco for $650,000. How much gain must the Colemans recognize?

Mathew Murphy, single, sold his home that he had owned for 20 years for $670,000. He purchased it for $110,000 and made $40,000 of capital improvements on the home during his time of ownership. (a.) How much gain is excluded? How much is recognized? (b.) If John purchased another home for $420,000, how much is excluded and recognized?

Assume instead that the Bennetts resided in a very depressed neighborhood and the home purchased in 2002 for $200,000 (capital improvements of $40,000) was sold for only $110,000. How much loss is recognized?

Margaret Moraine exchanged a business auto that had an adjusted basis to her of $24,000 with an outstanding liability of $4,000 for a new auto with a fair market value of $22,000. Margaret paid $2,000 in cash and her liability was assumed by the other party. What is Margaret's basis in the new auto?

To be a nontaxable, like-kind exchange, all of the following conditions must be met except:

Ray Rambler's office building with a basis of $75,000 was condemned by the county which paid him $120,000 as compensation. He purchased a new new office one year later for $105,000. Ray is entitled to postpone all of the $45,000 realized gain.

A fire destroyed Carl Cramer's business automobile. Carl originally paid $24,000 for the automobile and up to the time of the fire had been allowed $15,000 in depreciation. Within three months the insurance company replaced the old automobile with a new one which was worth $21,000. What is the basis of the new automobile for purposes of computing depreciation?

fte general like-kind exchange rule is that there is nonrecognition of loss but recognition of gain.

Nonrecognition of gain is mandatory regardless of whether an involuntary conversion is for money or property.

Elvera Easton traded in copying equipment with an adjusted basis of $10,000 for other copying equipment valued at $6,000. She also received $1,500 in cash, and her mortgage of $2,500 on the traded computer was wiped out. What is her gain on this exchange, if any?

A total residence can qualify as a principal residence if it is used partly for business purposes.

Spears Company's delivery truck was destroyed in a flood. fte insurance company paid Spears $20,000 for the delivery truck. fte delivery truck had an adjusted basis of $24,000 at the time of the flood. Within 10 days after receiving the insurance proceeds for the destruction of the delivery truck, Spears bought another delivery truck that cost $19,000. How much gain or loss does Spears recognize on the involuntary conversion of its delivery truck?

A realized loss on the sale of a residence may be either deducted or added on to the basis of the new residence.

A three-party exchange is used to remedy a situation in which one party wants a nontaxable exchange while the other party wishes to sell property.

Alfred Ahern sold a truck with an adjusted basis of $6,000 for $1,500 to a salvage yard. He purchased a replacement truck two months later for $24,000. Alfred's basis in the new truck is $28,500.