Exam 12: Nonrecognition Transactions

Which of the following qualify as replacement property under the involuntary conversion rules? I.Mayfield Ice Cream Company's production plant is destroyed by a hurricane.The insurance proceeds are used to replace the plant with a refrigerated storage container. II.Mayfield Ice Cream Company's production plant is destroyed by a fire.They sign a five year lease for a replacement production facility,and the insurance proceeds are then used to buy an office building ​

Which of the following qualify as a like-kind exchange? -Microsoft common stock for Merrill Lynch common stock.

Which of the following qualify as a like-kind exchange? -Land held as an investment for land used in a business.

Mavis is a schoolteacher with an annual salary of $28,000.Last year she sold a substantial block of securities that she had inherited from her grandmother several years before.She used the proceeds to buy an apartment building in a neighboring community.She realized a $15,000 capital loss on the sale.She carries over $12,000 of the capital loss to the current year.During the current year,a fire destroys the apartment building when its adjusted basis is $100,000.Mavis receives an insurance check for $110,000 and immediately invests it in another apartment building.Advise Mavis how she should deal with these situations for the current tax year.

Which of the following qualify as a like-kind exchange? -Office copier for an office fax machine.

Discuss the concepts underlying the determination of the basis of property received in a nontaxable exchange.

If related parties complete a qualified like-kind exchange,how long must the parties wait before disposing of the property exchanged to insure that any realized gain on the transfer is not recognized?

Robert trades an office building located in Tennessee to John for an apartment complex located in New Jersey.Details of the two properties: In addition,John pays Robert $3,000,000 cash as part of this transaction.What is the gain (loss)recognized by Robert in this transaction and what is his basis in the New Jersey property? Gain Recognized Adjusted Basis

Ed and Elise got married during the year and they each sold their homes to buy a new house for them to live in.As long as they file a joint return they can each claim a $250,000 exclusion.

A flood destroys Franklin's manufacturing facility.The building had a basis of $600,000 when destroyed.Franklin's insurance company reimburses him $850,000,the appraised replacement cost of the building.Franklin purchases a qualified replacement facility for $1,100,000.Discuss the tax effects of these transactions applying the concepts of taxation that drive your answers.

Grant exchanges an old pizza oven from his business for a new oven.In addition to the old oven,which has a basis of $10,000,Grant pays $4,000 cash and takes out a loan on the new oven for $6,000.The new oven is valued at $22,000.What is Grant's recognized gain or loss due on this transaction?

The general mechanism used to defer gains and losses from a transaction includes certain adjustments to the fair market value of the replacement property.These adjustments include I.adding boot received. II.subtracting deferred gains. ​

Which of the following exchanges of property are like-kind exchanges? I.Convenience store owner trades several cases of potato chips for a cash register. II.A completely rented apartment building traded for a parts supply warehouse to use in business. ​

Charlotte purchases a residence for $105,000 on April 13,2004.On July 1,2015,she marries Howard and they use Charlotte's house as their principal residence.If they sell their home for $390,000,incurring $20,000 of selling expenses and purchase another residence costing $350,000.Which of the following statements is/are correct concerning the sale of their personal residence? ​

The mechanism for effecting a deferral in a nonrecognition transaction is an adjustment of the replacement asset's basis.

Which of the following is/are correct concerning a principal residence? I.The maximum amount of gain a single taxpayer can exclude on the sale of a principal residence is $500,000. II.To qualify for a $250,000 exclusion,a single taxpayer must have owned and used the property as a principal residence for at least 2 of the previous 5 years. ​

Sarah exchanges investment real estate with Russell.Sarah's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Sarah enough in cash to balance the exchange.What is Russell's basis in the new land?

A flood destroys Owen's building that cost $100,000 in 2009,which has an adjusted basis of $80,000.Owen's insurance company reimburses him $125,000 for his loss.Owen promptly reconstructs the building for $115,000.What is the minimum amount of gain that Owen must recognize and his basis in the new building? ​ Recognized New Gain Basis

Simon exchanged his Mustang for Michael's Econovan so that he could go hunting.The exchange does not qualify as a like-kind exchange since the assets are personal.

Violet exchanges investment real estate with Russell.Violet's adjusted basis in her two-year old property is $280,000.The property is encumbered by a mortgage of $100,000 and has a fair market value of $320,000 when exchanged.Russell assumes that debt.Russell paid $80,000 cash for his property in 1999 and it is appraised at $150,000 on the day of the exchange.Russell pays Violet enough in cash to balance the exchange.What is Russell's recognized gain (loss)on the exchange?