Exam 15: Property Transactions Nontaxable Exchanges

Under what circumstances may a partial § 121 exclusion be available even though the taxpayer has used the § 121 exclusion within the two-year period preceding the sale of the current residence?

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30,2016.On January 11,2017,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 12,2017,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?

Discuss the relationship between the postponement of realized gain under § 1031 (like-kind exchanges)and the adjusted basis and holding period for the replacement property.

Lucinda,a calendar year taxpayer,owned a rental property with an adjusted basis of $312,000 in a major coastal city.Her property was condemned by the city government on October 12,2016.In order to build a convention center,Lucinda eventually received qualified replacement property from the city government on March 9,2017.This new property has a fair market value of $410,000. a.What is Lucinda's recognized gain or loss on the condemnation? b.What is her adjusted basis for the new property? c.If,instead of receiving qualifying replacement property,Lucinda was paid $410,000,what is the latest date that she can acquire qualifying replacement property?

A taxpayer who sells his or her principal residence at a realized loss can elect to recognize the loss even if a qualified residence is acquired during the statutory time period.

On October 1,Paula exchanged an apartment building (adjusted basis of $375,000 and subject to a mortgage of $125,000)for another apartment building owned by Nick (fair market value of $550,000 and subject to a mortgage of $125,000).The property transfers were made subject to the mortgages.What amount of gain should Paula recognize?

For each of the following involuntary conversions,determine if the property qualifies as replacement property. a.Chuck's restaurant building is destroyed by fire.He clears the site and builds another restaurant building. b.Diane's warehouse which she used for storing inventory is destroyed by a tornado.She purchases another warehouse in which she will store inventory. c.Part of Andrew's dairy farm land is condemned to make way for an interstate highway.He uses the condemnation proceeds to construct a barn to be used for storing cattle feed. d.Liz owns a shopping mall which is destroyed by a flood.Since the tenant occupancy rate was down,she uses the insurance proceeds to purchase an office building which she will rent to tenants. e.Eleanor's Maserati Gran Turismo is stolen.The original cost was $125,000,and she had used it exclusively for personal use.Due to the limited supply of this model,it had appreciated in value.Eleanor received insurance proceeds of $130,000 and uses the proceeds to purchase a replacement Gran Turismo.

As part of the divorce agreement,Tyler transfers his ownership interest in their personal residence to Lupe.The house had been jointly owned by Tyler and Lupe and the adjusted basis is $520,000.At the time of the transfer to Lupe,the fair market value is $800,000.What is the recognized gain to Tyler,and what is Lupe's basis for the house?

If there is an involuntary conversion (i.e. ,casualty,theft,or condemnation)of the taxpayer's principal residence,the realized gain may be postponed as a § 1033 involuntary conversion and/or excluded as a § 121 sale of a principal residence.

In a nontaxable exchange,recognition is postponed.In a tax-free transaction,nonrecognition is permanent.

Jake exchanges an airplane used in his business for a smaller airplane to be used in his business.His adjusted basis for the airplane is $325,000 and the fair market value is $310,000.The fair market value of the smaller airplane is $300,000.In addition,Jake receives cash of $10,000.Calculate Jake's realized and recognized gain or loss and his adjusted basis for the assets received.

Ramon sells land with an adjusted basis of $120,000 and a fair market value of $175,000 to Pauline,his wife,for $175,000.Discuss how the tax consequences would differ if Ramon and Pauline had never been married.

The basis of boot received in a like-kind exchange is its fair market value,unless the realized gain is a smaller amount.

After 5 years of marriage,Dave and Janet decided to get a divorce.As part of the divorce settlement,Janet transfers to Dave the house she purchased prior to their marriage.Janet's adjusted basis for the house is $230,000 and the fair market value is $410,000 on the date of the transfer.What are the tax consequences to Janet and to Dave as a result of the transfer?

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30,2016.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1,2017.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31,2019.What is Sam's recognized gain on receipt of the condemnation award and basis for the new office building assuming his objective is to minimize gain recognition?

Kendra owns a home in Atlanta.Her company transfers her to Chicago on January 2,2016,and she sells the Atlanta house in early February 2016.She purchases a residence in Chicago on February 3,2016.On December 15,2016,Kendra's company transfers her to Los Angeles.In January 2017,she sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two-year period,§ 121 treatment does not apply to the sale of the second home.

Discuss the treatment of realized gains from involuntary conversions.

A realized gain on an indirect (conversion into money)involuntary conversion of business property can be postponed,but a realized loss on an indirect involuntary conversion of business property cannot be postponed.

Discuss the relationship between realized gain and boot received in a § 1031 like-kind exchange.

What requirements must be satisfied to receive nontaxable exchange treatment under § 1031?