Question 1

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

Accepted Answer

A) True 
 B)False

Question 2

If property is involuntarily converted into similar property,the basis and holding period of the converted property carry over to the basis and holding period of the replacement property.

Accepted Answer

A) True 
 B)False

Question 3

Marinda exchanges an office building worth $800,000 (basis is $820,000)for a warehouse worth $850,000.As part of the exchange she also transfers $50,000 worth of securities which she purchased for $40,000.
a.What are Marinda's realized and recognized gains (losses)on the two assets exchanged?
b.What is Marinda's basis in the warehouse acquired?

Accepted Answer

a.
 @#IMG-DLM& 
Loss cannot be recognized on like-

Question 4

All of the following statements are true with regard to personal residences except:

Accepted Answer

A) Temporarily renting property that was formerly the taxpayer's principal residence does not automatically preclude the use of Sec.121. 
B) To qualify for favorable tax treatment under Sec.121,the residence must be either the taxpayer's principal residence or a secondary residence. 
C) In the case of married taxpayers,an individual may claim the exclusion even if the individual's spouse used the exclusion within the past two years. 
D) Houseboats,house trailers,and condominium apartments may qualify as a principal residence. 
A) Temporarily renting property that was formerly the taxpayer's principal residence does not automatically preclude the use of Sec.121. 
B) To qualify for favorable tax treatment under Sec.121,the residence must be either the taxpayer's principal residence or a secondary residence. 
C) In the case of married taxpayers,an individual may claim the exclusion even if the individual's spouse used the exclusion within the past two years. 
D) Houseboats,house trailers,and condominium apartments may qualify as a principal residence.

Question 5

Which of the following statements with respect to a like-kind exchange is false?

Accepted Answer

A) Property of one class must be exchanged for property of the same class. 
B) An exchange of inventory does not qualify as a like-kind exchange. 
C) Personal property must be exchanged for personal property. 
D) A sale of property and subsequent purchase of like-kind property will always qualify as a like-kind exchange. 
A) Property of one class must be exchanged for property of the same class. 
B) An exchange of inventory does not qualify as a like-kind exchange. 
C) Personal property must be exchanged for personal property. 
D) A sale of property and subsequent purchase of like-kind property will always qualify as a like-kind exchange.

Question 6

Discuss why a taxpayer would want to avoid like-kind exchange provisions.

Accepted Answer

If the sale of the property results in a

Question 7

Vector Inc.'s office building burns down on October 31,2016.Vector,a calendar-year taxpayer,finally settles with the insurance company on February 3,2017.In order to defer the gain realized on the building,Vector must acquire another office building by February 3,2019.

Accepted Answer

A) True 
 B)False

Question 8

Glen owns a building that is used in business.The building is worth $200,000,but is subject to a mortgage of $40,000.Glen's basis in the building is $120,000.Glen exchanges the building for investment land worth $150,000 plus $10,000 cash.In addition,the other party assumes the mortgage which will be held for investment.Glen must recognize a gain of

Accepted Answer

A) $0. 
B) $10,000. 
C) $50,000. 
D) $80,000. 
A) $0. 
B) $10,000. 
C) $50,000. 
D) $80,000.

Question 9

Kevin exchanges an office building used in his business for another office building worth $200,000 plus $30,000 cash.The FMV of Kevin's old building is $280,000 (basis $150,000)and it is subject to a mortgage of $50,000.The mortgage is assumed by the other party.
a.What is the amount of gain realized by Kevin?
b.What is the amount of gain recognized by Kevin?
c.What is the basis of the new building to Kevin?

Accepted Answer

@#IMG-DLM& 
c.$150,000 determined as follows:
(1)F

Question 10

Juan's business delivery truck is destroyed in an accident.He paid $40,000 for the truck,and $30,000 of depreciation has been deducted during its period of use.The insurance company pays Juan $32,000 due to the accident.What is the minimum amount that Juan must spend on a new truck to avoid any gain recognition?

Accepted Answer

A) $40,000 
B) $32,000 
C) $10,000 
D) $22,000 
A) $40,000 
B) $32,000 
C) $10,000 
D) $22,000

Question 11

Luke's offshore drilling rig with a $700,000 adjusted basis is destroyed by a hurricane.He collects $620,000 from the insurance company and purchases a new drilling rig for $600,000.
a.What are the tax consequences of these transactions?
b.What is the basis of the new rig?

Accepted Answer

a.A taxpayer may not defer rec

Question 12

Bob and Elizabeth Brown,a married couple,sell their personal residence to Tamel.Tamel pays $660,000 and assumes their $90,000 mortgage.To make the sale Browns pay $20,000 in commissions and $10,000 in legal costs.The couple has owned and lived in the house for seven years and their tax basis is $200,000.What is the amount of gain recognized on the sale?

Accepted Answer

A) $0 
B) $20,000 
C) $50,000 
D) $520,000 
A) $0 
B) $20,000 
C) $50,000 
D) $520,000

Question 13

Generally,a full exclusion of gain under Sec.121 upon the sale of a personal residence applies to only one sale or exchange every

Accepted Answer

A) six months. 
B) year. 
C) two years. 
D) five years. 
A) six months. 
B) year. 
C) two years. 
D) five years.

Question 14

A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years.

Accepted Answer

A) True 
 B)False

Question 15

The $250,000/$500,000 exclusion for gain on the sale of a personal residence is only available to taxpayers who are age 55 or older.

Accepted Answer

A) True 
 B)False

Question 16

In 1997,Paige paid $200,000 to purchase a new residence.She paid a realtor $5,000 to help locate the house and paid legal fees of $3,000 to make certain that the seller had legal title to the property.Under the provisions of tax law in effect at the time of the purchase,she deferred a gain of $30,000 from the sale of a former residence in 1996.In 1999,she added a new porch to the house at a cost of $15,000 and installed central air conditioning at a cost of $12,000.Since purchasing the house,she has paid $2,000 in repairs.What is the adjusted basis of the home?

Accepted Answer

The adjusted basis o

Question 17

Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.Assuming the proper election is made to defer gain,Stephanie's basis in the new building will be

Accepted Answer

A) $175,000. 
B) $180,000. 
C) $200,000. 
D) $210,000. 
A) $175,000. 
B) $180,000. 
C) $200,000. 
D) $210,000.

Question 18

The Smiths owned and occupied their principal residence,with an adjusted basis of $250,000,for ten years.The house is destroyed by a tornado and the Smiths receive insurance proceeds of $800,000.Six months later,they purchase another residence for $850,000.
a.What is the amount of gain the Smiths must recognize?
b.What is the basis of the new residence?

Accepted Answer

The answer of The Smiths owned and occupied their principal...

Question 19

Cheryl owns 200 shares of Cornerstone Corporation common stock which has an adjusted basis of $60,000 and a fair market value of $75,000.John owns 200 shares of Cable Corporation with a $75,000 fair market value.
a.If Cheryl and John exchange their stock,what is the amount of Cheryl's realized gain?
b.If Cheryl and John exchange their stock,what is the amount of Cheryl's recognized gain?

Accepted Answer

a.$75,000 - $60,000 = $15,000

Question 20

Alex,a commercial fisherman,owns a fishing boat with a $1,600,000 basis.The boat is destroyed in a hurricane,and Alex collects $2,000,000 from the insurance company.He purchases another boat for $1,550,000.What is the amount of the gain recognized on the transaction?

Accepted Answer

A) $400,000 
B) $50,000 
C) $450,000 
D) $0 
A) $400,000 
B) $50,000 
C) $450,000 
D) $0

Exam 28: Property Transactions: Nontaxable Exchanges

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

If property is involuntarily converted into similar property,the basis and holding period of the converted property carry over to the basis and holding period of the replacement property.

All of the following statements are true with regard to personal residences except:

Which of the following statements with respect to a like-kind exchange is false?

Discuss why a taxpayer would want to avoid like-kind exchange provisions.

Vector Inc.'s office building burns down on October 31,2016.Vector,a calendar-year taxpayer,finally settles with the insurance company on February 3,2017.In order to defer the gain realized on the building,Vector must acquire another office building by February 3,2019.

Luke's offshore drilling rig with a $700,000 adjusted basis is destroyed by a hurricane.He collects $620,000 from the insurance company and purchases a new drilling rig for $600,000. a.What are the tax consequences of these transactions? b.What is the basis of the new rig?

Generally,a full exclusion of gain under Sec.121 upon the sale of a personal residence applies to only one sale or exchange every

A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years.

The $250,000/$500,000 exclusion for gain on the sale of a personal residence is only available to taxpayers who are age 55 or older.

Alex,a commercial fisherman,owns a fishing boat with a $1,600,000 basis.The boat is destroyed in a hurricane,and Alex collects $2,000,000 from the insurance company.He purchases another boat for $1,550,000.What is the amount of the gain recognized on the transaction?

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