Exam 15: Property Transactions Nontaxable Exchanges

In a nontaxable exchange,the replacement property is assigned a carryover basis if there is a realized gain,but receives a new basis if there is a realized loss.

Evelyn,a calendar year taxpayer,lists her principal residence with a realtor on February 7,2016,enters into a contract to sell on July 12,2016,and sells (i.e. ,the closing date)the residence on August 1,2016.The realized gain on the sale is $225,000.Which date is the appropriate ending date in determining if the residence has been owned and used by the Evelyn as the principal residence for at least two years during the prior five-year period?

Bud exchanges a business use machine with an adjusted basis of $22,000 and a fair market value of $30,000 for another business use machine with a fair market value of $28,000 and $2,000 cash.What is Bud's recognized gain or loss?

Owen and Polly have been married for five years.Owen sells investment property to Polly for a realized gain of $140,000.Owen's gain of $140,000 is not recognized and Polly's basis for the property she purchased is her cost.

Lily exchanges a building she uses in her rental business for a building owned by Kendall,which she will use in her rental business.The adjusted basis of Lily's building is $120,000 and the fair market value is $170,000.Which of the following statements is correct?

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.

The exchange of unimproved real property located in Topeka (KS)for improved real property located in Atlanta (GA)does not qualify as a like-kind exchange.

What effect do the assumption of liabilities have on a § 1031 like-kind exchange?

To qualify as a like-kind exchange,real property must be exchanged either for other real property or for personal property with a statutory life of at least 39 years.

Maud exchanges a rental house at the beach with an adjusted basis of $225,000 and a fair market value of $200,000 for a rental house at the mountains with a fair market value of $180,000 and cash of $20,000.What is the recognized gain or loss?

Under the taxpayer-use test for a § 1033 involuntary conversion,the taxpayer has less flexibility in qualifying replacement property than under the functional-use test.

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

Katrina,age 58,rented (as a tenant)the house that was her principal residence from January 1,2016 through December 31,2017.She purchased the house on January 1,2018,for $150,000 and continued to occupy it through June 30,2019.She leased it to a tenant from July 1,2019,through December 31,2020.On January 1,2020,she sells the house for $350,000.She incurs a realtor's commission of $20,000.Calculate her recognized gain if her objective is to minimize the recognition of gain and she does not intend to acquire another residence.

Distinguish between a direct involuntary conversion and an indirect involuntary conversion.

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion),makes the appropriate election,and the amount reinvested in replacement property is less than the amount realized,realized gain is:

If a taxpayer exchanges like-kind property under § 1031 and assumes a liability associated with the property received,the taxpayer is considered to have received boot in the transaction.

Discuss the treatment of losses from involuntary conversions.

Byron,who lived in New Hampshire,acquired a personal residence ten years ago when he was 52 years old.During this period he has occupied the residence for only eight months (out of 12)each year due to winter vacations in Florida.Is Byron eligible for exclusion of gain under § 121?

When boot in the form of cash is given in a like-kind exchange,recognized gain is the greater of the boot or the realized gain.

To qualify for the § 121 exclusion,the property must have been used by the taxpayer for the 5 years preceding the date of sale and owned by the taxpayer as the principal residence for the last 2 of those years.