Exam 9: Nontaxable Exchanges

Bill contributed business realty ($375,000 FMV and $113,000 adjusted basis) to Zeta Inc. in exchange for Zeta common stock. Immediately after the exchange, Bill owned 53% of Zeta's outstanding stock. Compute gain recognized by Bill and by Zeta on this exchange.

Carman wishes to exchange 10 acres of Iowa farm land in a like-kind exchange. Which of the following properties will qualify for like-kind exchange treatment?

Ms. 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.

Loonis Inc. and Rhea Company formed LooNR Inc. by transferring business assets in exchange for 1,000 shares of LooNR common stock. Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares. Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares. Determine Loonis and Rhea's tax basis in their LooNR stock and LooNR's aggregate tax basis in the transferred assets.

Which of the following statements about the transfer of debt in a like-kind exchange is false?

Mr. and Mrs. Eyre own residential rental property that they would like to dispose of in a nontaxable exchange. Which of the following would not qualify as like-kind property?

Reiter Inc. exchanged an old forklift for new office furniture. This like-kind exchange is nontaxable.

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?

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.

Which of the following statements about boot included in a nontaxable exchange is false?

Tax neutrality for asset exchanges is the exception rather than the rule.

Loonis Inc. and Rhea Company formed LooNR Inc. by transferring business assets in exchange for 1,000 shares of LooNR common stock. Loonis transferred assets with a $820,000 FMV and a $444,000 adjusted tax basis and received 820 shares. Rhea transferred assets with a $180,000 FMV and a $75,000 adjusted tax basis and received 180 shares. Which of the following statements is true?

Rydell Company exchanged business equipment (initial cost $55,250; accumulated depreciation $25,450) for like-kind equipment worth $44,000 and $2,000 cash. As a result, Rydell must recognize:

Mrs. Volter exchanged residential real estate for a commercial office building. The residential real estate was subject to a $92,800 mortgage, which was assumed by the other party to the exchange. Mrs. Volter must treat the relief of the mortgage as $92,800 boot received.

Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for a 36% interest in M&W Partnership. Compute M&W's recognized gain on its exchange of an equity interest for property and determine M&W's tax basis in the property received from Mrs. Brinkley.

Oxono Company realized a $74,900 gain on the exchange of one asset for another asset (no cash was included in the exchange). The assets were like-kind properties. Oxono reported the gain as revenue on its financial statements. Which of the following is true?

Tarletto Inc.'s current year income statement includes a $229,000 gain realized on the exchange of an old business asset for a new business asset. If the exchange is nontaxable, Tarletto's book basis in the new asset is $229,000 greater than its tax basis.

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

Which of the following statements about the wash sale rule is false?

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