Exam 15: Property Transactions Nontaxable Exchanges

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000)for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for 6 years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

Molly exchanges a small machine (adjusted basis of $85,000;fair market value of $78,000)used in her business and investment land (adjusted basis of $10,000;fair market value of $15,000)for a large machine (fair market value of $93,000)to be used in her business in a like-kind exchange.What is Molly's recognized gain or loss?

At a particular point in time,a taxpayer can have two principal residences for § 121 exclusion purposes.

Carl sells his principal residence,which has an adjusted basis of $150,000 for $200,000.He incurs selling expenses of $20,000 and legal fees of $2,000.He had purchased another residence one month prior to the sale for $380,000.What is the recognized gain or loss and the basis of the replacement residence if the taxpayer elects to forgo the § 121 exclusion (exclusion of gain on sale of principal residence)?

The surrender of depreciated boot (fair market value is less than adjusted basis)in a like-kind exchange can result in the recognition of loss.

The holding period of replacement property where the election to postpone gain is made includes the holding period of the involuntarily converted property.

If boot is received in a § 1031 like-kind exchange that results in some of the realized gain being recognized,the holding period for both the like-kind property and the boot received begins on the date of the exchange.

Melissa,age 58,marries Arnold,age 50,on June 1,2016.Melissa decides to sell her principal residence on August 1,2016,which she has owned and occupied for the past 30 years.Arnold has never owned a house.However,while he was married to Kelly who died 6 months prior to his marriage to Melissa,Kelly used the § 121 election on the sale of her residence in January 2014 to reduce her realized gain from $123,000 to $0.Kelly used the sales proceeds to pay off Arnold's gambling debts.Can Melissa elect the § 121 exclusion on the sale of her residence? What is the maximum § 121 exclusion available to Melissa and Arnold if they file a joint return?

In determining the basis of like-kind property received,postponed losses are:

Kate exchanges land held as an investment for land and a building owned by Clark,to be used in her business.If Clark is Kate's father,her realized gain of $150,000 must be recognized because they are related parties.

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.

Eric and Faye,who are married,jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years,they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence)and if they elect to forgo the § 121 exclusion? ​ With exclusion Elect to forgo

What kinds of property do not qualify under the like-kind provisions?

Sidney,a calendar year taxpayer,owns a building (adjusted basis $450,000)in Columbus,OH,in which he conducts his retail computer sales business.The building is destroyed by fire on December 12,2016,and two weeks later he receives insurance proceeds of $600,000.Due to family ties,Sidney decides to move to Columbia,SC.He reinvests all of the insurance proceeds in a building in Columbia where he opens a retail computer sales business on April 2,2017.By electing § 1033,Sidney has no recognized gain and a basis in the new building of $450,000 ($600,000 cost - $150,000 postponed gain).

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion)and the amount reinvested in replacement property exceeds the amount realized,the basis of the replacement property is:

Dennis,a calendar year taxpayer,owns a warehouse (adjusted basis of $190,000)which is destroyed by a tornado in October 2016.He receives insurance proceeds of $250,000 in January 2017.If before 2020,Dennis replaces the warehouse with another warehouse costing at least $250,000,he can elect to postpone the recognition of any realized gain.

Jared,a fiscal year taxpayer with a August 31st year-end,owns an office building (adjusted basis of $800,000)that was destroyed by fire on December 24,2016.If the insurance settlement was $950,000 (received March 1,2017),what is the latest date that Jared can replace the office building in order to qualify for § 1033 nonrecognition of gain?

Matt,who is single,sells his principal residence,which he has owned and occupied for 5 years,for $435,000.The adjusted basis is $140,000 and the selling expenses are $20,000.Three days after the sale he purchases another residence for $385,000.Matt's recognized gain is $25,000 and his basis for the new residence is $385,000.

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).