Question 1

Which of the following statements is false regarding involuntary conversions?

Accepted Answer

A) A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. 
B) A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion. 
C) If deferral of gain is elected,the holding period of the converted property carries over to the replacement property. 
D) Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property. 
A) A taxpayer must replace the destroyed property within the same tax year in which the gain is realized. 
B) A taxpayer cannot elect to defer recognition of a loss resulting from an involuntary conversion. 
C) If deferral of gain is elected,the holding period of the converted property carries over to the replacement property. 
D) Gain may be deferred if the property is involuntarily converted into property that is similar or related in service or use to the converted property.

Question 2

Pamela owns land for investment purposes. The land is worth $300,000 (basis of $260,000 to Pamela). Pamela exchanges the land,plus $20,000 cash,for a warehouse to be used in her business. The FMV of the warehouse is $400,000,but the warehouse is subject to a mortgage of $80,000,which is assumed by Pamela. Pamela must recognize a gain of

Accepted Answer

A) $ 0. 
B) $ 40,000. 
C) $ 120,000. 
D) $ 140,000. 
A) $ 0. 
B) $ 40,000. 
C) $ 120,000. 
D) $ 140,000.

Question 3

Mitchell and Debbie,both 55 years old and married,sell their personal residence to Sophie. Sophie pays $225,000 and assumes their $70,000 mortgage.To make the sale they pay $4,000 in commissions and $1,000 in legal costs.They have owned and lived in the house for seven years and their tax basis is $125,000.What is the amount of gain recognized on the sale?

Accepted Answer

A) $0 
B) $100,000 
C) $165,000 
D) $170,000 
A) $0 
B) $100,000 
C) $165,000 
D) $170,000

Question 4

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 will recognize gain of

Accepted Answer

A) $0. 
B) $30,000. 
C) $60,000. 
D) $90,000. 
A) $0. 
B) $30,000. 
C) $60,000. 
D) $90,000.

Question 5

When 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.

Accepted Answer

A) True 
 B)False

Question 6

Kevin exchanges an office building used in his business for another office building worth $200,000 plus $30,000 cash.The FMV of Kevin's old building is $280,000 (basis $150,000)and it is subject to a mortgage of $50,000. The mortgage is assumed by the other party.
a.What is the amount of gain realized by Kevin?
b.What is the amount of gain recognized by Kevin?
c.What is the basis of the new building to Kevin?

Accepted Answer

a.Property received: @#IMG-DLM& b.Gain recognized

Question 7

The receipt of boot as part of a nontaxable exchange causes a realized loss to be recognized.

Accepted Answer

A) True 
 B)False

Question 8

Each of the following is true of deferral of gain attributable to the involuntary conversion of personal property with the exception of

Accepted Answer

A) gain deferral is elective,except for direct conversions. 
B) the replacement property may be acquired by gift,inheritance,or purchase. 
C) qualifying replacement property must be acquired within a specified time period. 
D) replacement property must be similar or related in service or use to the converted property. 
A) gain deferral is elective,except for direct conversions. 
B) the replacement property may be acquired by gift,inheritance,or purchase. 
C) qualifying replacement property must be acquired within a specified time period. 
D) replacement property must be similar or related in service or use to the converted property.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

According to Sec.121,individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for

Accepted Answer

A) at least five years immediately before the sale date. 
B) at least one year of the three-year period before the sale date. 
C) at least two years of the five-year period before the sale date. 
D) at least five years of the ten-year period before the sale date. 
A) at least five years immediately before the sale date. 
B) at least one year of the three-year period before the sale date. 
C) at least two years of the five-year period before the sale date. 
D) at least five years of the ten-year period before the sale date.

Question 11

A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years.

Accepted Answer

A) True 
 B)False

Question 12

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

Accepted Answer

A) True 
 B)False

Question 13

Emily owns land for investment purposes that has a FMV of $300,000 (basis of $260,000). She exchanges the land,plus $40,000 cash,for a warehouse to be used in her business. The warehouse is worth $420,000,but is subject to a mortgage of $80,000 which Emily will assume. The gain realized by Emily on the exchange is

Accepted Answer

A) $40,000. 
B) $80,000. 
C) $120,000. 
D) $160,000. 
A) $40,000. 
B) $80,000. 
C) $120,000. 
D) $160,000.

Question 14

If real property used in a trade or business or held for investment is condemned,it must be replaced with property having a similar functional use.

Accepted Answer

A) True 
 B)False

Question 15

Olivia exchanges land with a $50,000 basis plus marketable securities with a $20,000 basis for a larger parcel of land worth $110,000 in a transaction that otherwise qualifies as a like-kind exchange.The FMV of the land and marketable securities exchanged by Olivia is $75,000 and $35,000 respectively.
a.What is the amount of gain realized and recognized by Olivia on each asset?
b.What is the amount of Olivia's basis in the new land?

Accepted Answer

a. @#IMG-DLM& b.Olivia's basis in the ne

Question 16

An office building owned by Abby and used in her business was destroyed in a fire.Abby's adjusted basis in the building was $145,000 and its FMV was $180,000.Abby filed an insurance claim and she was reimbursed $160,000.In that same year,Abby invested $150,000 of the insurance proceeds in another business building.
a.Assume Abby made the proper election with regard to the involuntary conversion.What is the amount of gain to be recognized by Abby?
b.What is Abby's basis in the new building?

Accepted Answer

The answer of An office building owned by Abby and...

Question 17

Which of the following statements is false with regard to the ownership and use tests under Sec.121?

Accepted Answer

A) The taxpayer must be occupying the residence at the time of the sale in order for Sec.121 to apply. 
B) If a principal residence is sold before satisfying the ownership and use tests,part of the gain may be excluded if the sale is due to a change in employment,health,or unforeseen circumstances. 
C) For purposes of the two-year ownership rule,a taxpayer's period of ownership includes the period during which the taxpayer's deceased spouse owned the residence. 
D) When a taxpayer receives a residence from a spouse or an ex-spouse incident to a divorce,the taxpayer's period of owning the property includes the time the residence was owned by the spouse or ex-spouse. 
A) The taxpayer must be occupying the residence at the time of the sale in order for Sec.121 to apply. 
B) If a principal residence is sold before satisfying the ownership and use tests,part of the gain may be excluded if the sale is due to a change in employment,health,or unforeseen circumstances. 
C) For purposes of the two-year ownership rule,a taxpayer's period of ownership includes the period during which the taxpayer's deceased spouse owned the residence. 
D) When a taxpayer receives a residence from a spouse or an ex-spouse incident to a divorce,the taxpayer's period of owning the property includes the time the residence was owned by the spouse or ex-spouse.

Question 18

If an exchange qualifies as a like-kind exchange,nonrecognition of gain or loss is elective.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements in not correct regarding the compliance requirements of an involuntary conversion?

Accepted Answer

A) The taxpayer elects the deferral by not reporting the gain as income for the first year in which the gain is realized although all relevant information regarding the vent will be reported. 
B) A taxpayer who recognized the full gain and paid the taxes can later file a refund claim to elect the deferral if qualified property is acquired before the expiration of the replacement period. 
C) A taxpayer elects to defer the full gain in the year the gain is realized (year one),and no gain is reported on that year's tax return.Qualified replacement property is acquired in the following year (year two),but the full insurance proceeds are not spent so some gain must be recognized.The partial gain recognition will be reported on the tax return for year two. 
D) A taxpayer properly elected to defer the full realized gain in year one and provides appropriate information on the replacement property.The taxpayer cannot later revoke the election and designate a different property as the replacement property. 
A) The taxpayer elects the deferral by not reporting the gain as income for the first year in which the gain is realized although all relevant information regarding the vent will be reported. 
B) A taxpayer who recognized the full gain and paid the taxes can later file a refund claim to elect the deferral if qualified property is acquired before the expiration of the replacement period. 
C) A taxpayer elects to defer the full gain in the year the gain is realized (year one),and no gain is reported on that year's tax return.Qualified replacement property is acquired in the following year (year two),but the full insurance proceeds are not spent so some gain must be recognized.The partial gain recognition will be reported on the tax return for year two. 
D) A taxpayer properly elected to defer the full realized gain in year one and provides appropriate information on the replacement property.The taxpayer cannot later revoke the election and designate a different property as the replacement property.

Question 20

Discuss the basis rules of property received in a nontaxable like-kind exchange.

Accepted Answer

The basis of property received in a nont

Exam 24: Property Transactions: Nontaxable Exchanges

Which of the following statements is false regarding involuntary conversions?

When 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.

The receipt of boot as part of a nontaxable exchange causes a realized loss to be recognized.

Each of the following is true of deferral of gain attributable to the involuntary conversion of personal property with the exception of

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

According to Sec.121,individuals who sell or exchange their personal residence may exclude part or all of the gain if the house was owned and occupied as a principal residence for

A loss on the sale of a taxpayer's personal residence is deductible if the taxpayer owned and lived in the home for two of five years.

If each party in a like-kind exchange assumes a liability of the other party,only the net liability given or received is boot.

If real property used in a trade or business or held for investment is condemned,it must be replaced with property having a similar functional use.

Which of the following statements is false with regard to the ownership and use tests under Sec.121?

If an exchange qualifies as a like-kind exchange,nonrecognition of gain or loss is elective.

Which of the following statements in not correct regarding the compliance requirements of an involuntary conversion?

Discuss the basis rules of property received in a nontaxable like-kind exchange.

Tax Research

an Introduction to Taxation

Corporate Formations and Capital Structure

I: Determination of Tax

The Corporate Income Tax

Gross Income: Inclusions

Corporate Nonliquidating Distributions

Gross Income: Exclusions

Other Corporate Tax Levies

Property Transactions: Capital Gains and Losses

Corporate Liquidating Distributions

Deductions and Losses

Corporate Acquisitions and Reorganizations

Itemized Deductions

Consolidated Tax Returns

Losses and Bad Debts

Partnership Formation and Operation

Employee Expenses and Deferred Compensation

Special Partnership Issues

Depreciation cost Recovery amortization and Depletion

S Corporations

Accounting Periods and Methods

The Gift Tax

The Estate Tax

Property Transactions: Section 1231 and Recapture

Income Taxation of Trusts and Estates

Special Tax Computation Methods, tax Credits, and Payment of Tax

Administrative Procedures

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