Exam 13: Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxabl

Use the following data to determine the sales price of Etta's principal residence and the realized gain.She is not married.The sale of the old residence qualifies for the § 121 exclusion. Selling expenses $ 45,000 Recognized gain 180,000 Cost of new residence 760,000 Adjusted basis of old residence 225,000 § 121 exclusion 250,000

Define an involuntary conversion.

Patty's factory building,which has an adjusted basis of $475,000,is destroyed by fire on April 8,2015.Insurance proceeds of $500,000 are received on June 1,2015.She has a new factory building constructed for $490,000,which she occupies on October 1,2015.Assuming Patty's objective is to minimize the tax liability,calculate her recognized gain or loss and the basis of the new factory building.

To be eligible to elect postponement of gain treatment for an involuntary conversion,what are the three tests for qualifying replacement property?

Define fair market value as it relates to property transactions.

Edward,age 52,leased a house for one year in Memphis with an option to buy as his personal residence.At the end of the lease,he purchased the house.He lived there for an additional 26 months before his employer transferred him to Tucson.Expecting to be in Tucson for 18 to 24 months,he rented the Memphis house for 18 months with an option to extend on a month to month basis for an additional 6 months.At the end of the 18-month period,Edward's employer offered him a permanent position in Tucson as branch manager.The tenant who had been occupying Edward's house in Memphis purchased it at the end of the 24-month extended lease period.Is Edward eligible to elect exclusion treatment under § 121?

Discuss the treatment of losses from involuntary conversions.

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30,2015.On January 11,2016,the insurance company paid the owner $450,000.The fair market value of the building was $500,000,but under the co-insurance clause,the insurance company is responsible for only 90 percent of the loss.The owner reinvested $410,000 in a new office building on February 12,2016,that was smaller than the original office building.What is the recognized gain and the basis of the new building if § 1033 (nonrecognition of gain from an involuntary conversion) is elected?

Pat owns a 1965 Ford Mustang which he uses for personal use.He purchased it four years ago for $22,000,and it currently is worth $27,000.He exchanges it for a 1979 Triumph Spitfire convertible worth $27,000.Pat's recognized gain is $0 and his adjusted basis for the convertible is $22,000.

An involuntary conversion results from the destruction (complete or partial),theft,seizure,requisition or condemnation,or the sale or exchange under threat or imminence of requisition or condemnation of the taxpayer's property.

Leonore exchanges 5,000 shares of Pelican,Inc. ,stock for 2,000 shares of Blue Heron,Inc. ,stock.Leonore's adjusted basis for the Pelican stock is $300,000 and the fair market value of the Blue Heron stock is $350,000.Leonore's recognized gain is $0 and her adjusted basis for the Blue Heron stock is $300,000. ​

The adjusted basis for a taxable bond purchased at a premium is reduced if the amortization election is made.The amount of the amortized premium is treated as an interest deduction.

Pam exchanges a rental building,which has an adjusted basis of $520,000,for investment land which has a fair market value of $700,000.In addition,Pam receives $100,000 in cash.What is the recognized gain or loss and the basis of the investment land?

The amount realized does not include any amount received by the taxpayer that is designated as severance damages by both the government and the taxpayer.

If boot is received in a § 1031 like-kind exchange,the recognized gain cannot exceed the realized gain.

Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

If a taxpayer reinvests the net proceeds (amount received - related expenses) received in an involuntary conversion in qualifying replacement property within the statutory time period,it is possible to defer the recognition of the realized gain.

Andrew acquires 2,000 shares of Eagle Corporation stock for $100,000 on March 31,2011.On January 1,2015,he sells 125 shares for $5,000.On January 22,2015,he purchases 135 shares of Eagle Corporation stock for $6,075.When does Andrew's holding period begin for the 135 shares?

The basis for depreciation on depreciable gift property received is the donor's adjusted basis of the property at the date of the gift (assuming no gift taxes are paid).The rule applies regardless of whether the fair market value at the date of the gift is greater than or less than the donor's adjusted basis.

If a seller assumes the buyer's liability on the property acquired,the buyer's adjusted basis for the property is increased by the amount of the liability assumed.