Exam 9: Nontaxable Exchanges

Acme Inc. and Beamer Company exchanged like-kind assets. Acme's asset had a $240,000 FMV and $117,300 adjusted tax basis, and Beamer's asset had a $225,000 FMV and a $168,200 adjusted tax basis. Beamer paid $15,000 cash to Acme as part of the exchange. Which of the following statements is true?

Mrs Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for 4,200 shares of M&W stock. Immediately after the exchange, M&W had 7,800 shares of outstanding stock. -Determine Mrs Brinkley's realized and recognized gain on the exchange and the tax basis in her 4,200 M&W shares.

On May 13, 2018, a flood destroyed the building in which SDF Inc. manufactured its product. SDF's adjusted tax basis in the building was $984,000. On November 29, 2018, SDF received a $1.2 million reimbursement from its casualty insurance company. In each of the following cases, compute SDF's recognized gain on this involuntary conversion and its initial basis in the replacement property. a. On June 2, 2019, SDF completed construction of a replacement building for $1.3 million. b. On February 18, 2021, SDF paid $1.3 million to purchase a replacement building. c. On August 30, 2020, SDF paid $1.1 million to purchase a replacement building.

Kornek Inc. transferred an old asset with a $200,000 adjusted tax basis plus $12,000 cash in exchange for a new asset worth $260,000. Which of the following statements is false?

Which of the following statements about like-kind exchanges is false?

Hank exchanged an old asset with a $12,000 adjusted basis for a new asset with a $32,000 FMV plus $2,000 cash. Compute Hank's realized and recognized gain if the new and old assets are like-kind properties.

G&G Inc. transferred an old asset with a $110,300 adjusted tax basis plus $20,000 cash in exchange for a new asset worth $150,000. Which of the following statements is false?

Babex Inc. and OMG Company entered into an exchange of real property. Here is the information for the properties to be exchanged. Pursuant to the exchange, OMG assumed the mortgage on the Babex property. -Compute Babex's gain recognized on the exchange and its tax basis in the property received from OMG.

The substituted basis rule results in permanent nonrecognition of gains and losses realized in a nontaxable exchange.

Denali, Inc. exchanged realty with a $230,000 adjusted basis for like-kind realty with a $200,000 FMV and $5,000 cash. How much loss may Denali recognize?

A taxpayer who transfers property for corporate stock can defer gain recognition only if the taxpayer owns at least 50% of the corporation's outstanding stock immediately after the exchange.

On January 21, 2007, Andy purchased 350 shares of Baker common stock for $24,500. On November 13, 2018, he sold the 350 shares for $7,250. On December 1, 2018, Andy purchased 350 shares of Baker common stock for $8,000. What is Andy's basis in these shares?

Mrs Cooley exchanged 400 shares of stock for corporate bonds. If the stock and bonds were issued by the same corporation, they are like-kind properties, and the exchange is nontaxable.

Teco Inc. and MW Company exchanged like-kind assets. Teco's asset had an $80,000 FMV and $53,900 adjusted tax basis, and MW's asset had an $87,500 FMV and a $28,100 adjusted tax basis. Teco paid $7,500 cash to MW as part of the exchange. Which of the following statements is false?

A partnership always takes a carryover basis in property received from a partner in exchange for an equity interest in the partnership.

Mr Weller and the Olson Partnership entered into an exchange of investment real property. Mr Weller's property was subject to a $428,000 mortgage, which Olson assumed. Olson's property was subject to a $235,000 mortgage, which Mr Weller assumed. Which of the following statements is true?

A taxpayer who exchanges property for an interest in a partnership never recognizes gain or loss on the exchange.

If a taxpayer elected to defer a $13,000 gain realized on an involuntary conversion, the tax basis of the taxpayer's replacement property equals the cost of the property less $13,000.

Johnson Inc. and C&K Company entered into an exchange of real property. Here is the information for the properties to be exchanged. Pursuant to the exchange, C&K paid $25,000 cash to Johnson and assumed the mortgage on the Johnson property. -Compute C&K's gain recognized on the exchange and its tax basis in the property received from Johnson.

Ellis sold 889 shares of publicly traded Omer stock (tax basis $161,400) for $125,000 cash on July 2. She paid $136,200 cash to purchase 900 Omer shares on August 8. Compute Ms. Ellis' loss recognized on the July 2 sale and determine her tax basis in the 1,000 shares.