Exam 15: Property Transactions Nontaxable Exchanges

Liz,age 55,sells her principal residence for $600,000.She purchased it twenty-two years ago for $175,000.Selling expenses are $30,000 and repair expenses to get the house in a marketable condition to sell are $15,000.Liz's objective is to minimize the taxes she must pay associated with the sale.Calculate her recognized gain.

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.

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?

Edith's manufacturing plant is destroyed by fire on the afternoon of November 3,2016.The adjusted basis is $800,000.The insurance company offers a settlement of $700,000.After protracted negotiations,Edith receives $825,000 on June 9,2017.Edith is a fiscal year taxpayer whose tax year ends on June 30th.What is the latest date that Edith can invest the proceeds in qualifying replacement property and elect to defer the gain under § 1033?

Louis owns a condominium in New Orleans which has been his principal residence for 12 years.He wants to be near Lake Ponchartrain since he enjoys water activities.Therefore,he sells the condominium.His original intent was to purchase a house in New Orleans near the lake.However,the cost of such properties far exceeded his sales proceeds.He was able to purchase a house on the lake in Covington,which is located across the causeway.He invested all of his sales proceeds in the Covington house.After two months of commuting over an hour to and from work each day,he decides to rent an efficiency apartment in New Orleans near his office.He spends the weekends and vacations at his home in Covington. a.Does Louis qualify for exclusion of gain under § 121? b.Does his Covington house qualify as his principal residence?

What requirements must be satisfied for a delayed swap to qualify for § 1031 like-kind exchange treatment?

How does the replacement time period differ for the condemnation of real property used in a trade or business or held for investment when compared with that for other involuntary conversions?

Chaney exchanges a truck used in her business for making deliveries for a smaller more fuel-efficient truck to be used in her business for making deliveries.The adjusted basis for her truck is $32,000.The smaller truck has a fair market value of $33,000.In addition,Chaney receives cash of $4,000. a.Calculate Chaney's realized and recognized gain or loss. b.Calculate Chaney's basis for the assets she received.

Which of the following statements is correct?

The taxpayer must elect to have the exclusion of gain under § 121 (sale of principal residence)apply.

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. ​

Lola owns land as an investor.She exchanges the land for a warehouse which she leases to a tenant who uses it to store his business inventory.The exchange does qualify for like-kind exchange treatment.

Gil's office building (basis of $225,000 and fair market value $275,000)is destroyed by a hurricane.Due to a 30% co-insurance clause,Gil receives insurance proceeds of $192,500 two months after the date of the loss.One month later,Gil uses the insurance proceeds to purchase a new office building for $275,000.His adjusted basis for the new building is $307,500 ($275,000 cost + $32,500 postponed loss).

Joyce,a farmer,has the following events occur during the tax year.Which of the events qualify as an involuntary conversion under § 1033 (nonrecognition of gain from an involuntary conversion)?

Myrna's personal residence (adjusted basis of $100,000)was condemned,and she received a condemnation award of $80,000.Myrna used the condemnation proceeds to purchase a new residence for $90,000.What is her recognized gain or loss and her basis in the new residence?

Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city,she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

Discuss the logic for mandatory deferral of realized gain or loss for a § 1031 like-kind exchange.

What types of exchanges of insurance contracts are eligible for nonrecognition treatment under § 1035?

In October 2016,Ben and Jerry exchange investment realty in a § 1031 like-kind exchange.Ben bought his real estate in 2006 while Jerry purchased his in 2009.In addition to the realty,Ben receives Pearl,Inc.stock worth $10,000 from Jerry.Ben's realized gain is $30,000.On what date does the holding period for Ben's realty received from Jerry begin? When does the holding period for the stock he receives begin?

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