Exam 12: Property Transactions: Nontaxable Exchanges

Ron's building,which was used in his business,was destroyed in a fire.Ron's adjusted basis in the building was $210,000,and its FMV was $330,000.Ron filed an insurance claim and was reimbursed $300,000.In that same year,Ron invested $240,000 of the insurance proceeds in another business building.Ron's basis in the new building is

Pierce,a single person age 60,sold his home this year.He had lived in the house for 10 years.He signed a contract on March 4 to sell his home. Based on these facts,what is the amount of his recognized gain?

Under what circumstances can a taxpayer obtain a partial exclusion if a home is sold before the use and ownership tests are satisfied?

The basis of non-like-kind property received is the basis in the hands of the transferor at the date of the exchange.

An involuntary conversion is due to the condemnation of real property held for productive use in a trade or business or for investment.The replacement period will end three years after the close of the first tax year in which any part of the gain is realized.

Ike and Tina married and moved into their new home (purchase price $800,000)18 months ago.They are thinking of selling the home which is now worth $1,300,000.They plan to reinvest in a smaller home costing approximately $600,000.What should they consider before selling their home?

In 1997,Paige paid $200,000 to purchase a new residence.She paid a realtor $5,000 to help locate the house and paid legal fees of $3,000 to make certain that the seller had legal title to the property.Under the provisions of tax law in effect at the time of the purchase,she deferred a gain of $30,000 from the sale of a former residence in 1996.In 1999,she added a new porch to the house at a cost of $15,000 and installed central air conditioning at a cost of $12,000.Since purchasing the house,she has paid $2,000 in repairs.What is the adjusted basis of the home?

Jenna,who is single,sold her principal residence on December 1,2012,and excluded the $150,000 gain because she met the ownership and usage requirements under Sec.121.Jenna purchased another residence in Pensacola on January 1,2013 that she occupied until July 1,2013 when she receives a new job offer from an employer in Miami.She sells the Pensacola residence on October 1,2013 and realizes a gain of $40,000.Jenna may exclude what amount of the gain from the sale on October 1,2013?

When the cost of replacement property is less than the amount realized on an involuntary conversion,gain will be recognized.The recognized gain will be equal to the amount realized over the cost of the replacement property,but not more than the total realized gain.

If related taxpayers exchange property qualifying for a like-kind exchange,the properties must be retained for three years after the exchange to prevent recognition of gain resulting from the original exchange on a subsequent disposition of the property.

A sale of property and subsequent purchase of like-kind property may be treated as a like-kind exchange if the two transactions are interdependent.

Daniella exchanges business equipment with a $100,000 adjusted basis for $10,000 cash and business equipment with a $96,000 FMV.What is the amount of gain recognized on the exchange?

All of the following qualify as a like-kind exchange except

If a gain is realized on the involuntary conversion of property,the gain may be deferred if qualifying replacement property is acquired within a specified time period at a cost equal to or greater than the amount realized on the involuntary conversion.

In an involuntary conversion,the basis of replacement property is its cost reduced by the gain deferred.

In a nontaxable exchange,Henri traded in a truck having an adjusted basis of $8,500 and a FMV of $10,000,for a new truck having a FMV of $15,000.In addition,Henri paid cash of $5,000.What is Henri's basis in the new truck?

The involuntary conversion provisions which allow deferral of gain are mandatory.

Trent,who is in the business of racing horses,exchanges a racehorse with a basis of $80,000 for $40,000 cash and a trotter (another racehorse)with a $150,000 fair market value. a.What is the amount of gain realized by Trent? b.What is the amount of gain recognized by Trent? c.What is the adjusted basis of the trotter?

The taxpayer must be occupying the residence at the time of the sale in order for Sec.121 to apply.

Stephanie's building,which was used in her business,was destroyed in a fire.Stephanie's adjusted basis in the building was $175,000,and its FMV was $210,000.Stephanie filed an insurance claim and was reimbursed $200,000.In that same year,Stephanie invested $180,000 of the insurance proceeds in another business building.If the proper election is made,Stephanie will recognize gain of