Exam 15: Property Transactions: Nontaxable Exchanges

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).

In October 2014,Ben and Jerry exchange investment realty in a § 1031 like­kind exchange.Ben bought his real estate in 2004 while Jerry purchased his in 2007.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?

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

Shari exchanges an office building in New Orleans (adjusted basis of $700,000)for an apartment building in Baton Rouge (fair market value of $900,000).In addition,she receives $100,000 of cash.Shari's recognized gain is $100,000 and her basis for the apartment building is $800,000 ($700,000 adjusted basis + $100,000 recognized gain).

Which of the following statements is correct?

Sam's office building with an adjusted basis of $750,000 and a fair market value of $900,000 is condemned on November 30,2014.Sam is a calendar year taxpayer.He receives a condemnation award of $875,000 on March 1,2015.He builds a new office building at a cost of $845,000 which is completed and paid for on December 31,2017.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?

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. a. Amount realized (\ 33,000+\ 4,000) \ 37,000 Adjusted basis Realized gain \ 5,000 Recognized gain \4 ,000 a. Amount realized (\ 33,000+\ 4,000) \ 37,000 Adjusted basis Realized gain \ 5,000 Recognized gain \4 ,000

Kitty,who is single,sells her principal residence,which she has owned and occupied for 8 years,for $375,000.The adjusted basis is $64,000 and selling expenses are $22,000.She purchases another principal residence three months later for $200,000.Her recognized gain is $39,000 and her basis for the new principal residence is $200,000.

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

What kinds of property do not qualify under the like-kind provisions?

Section 1033 (nonrecognition of gain from an involuntary conversion)applies to both gains and losses.

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 24­month extended lease period.Is Edward eligible to elect exclusion treatment under § 121?

Nancy and Tonya exchanged assets.Nancy gave Tonya her personal residence with an adjusted basis of $280,000 and a fair market value of $560,000.The house has a mortgage of $200,000 which is assumed by Tonya.Tonya gave Nancy a yacht used in her business with an adjusted basis of $250,000 and a fair market value of $360,000.What is Tonya's realized and recognized gain?

Eric and Faye,who are married,jointly own a house in which they have resided for the past 17 years.They sell the house for $375,000 with realtor's fees of $10,000.Their adjusted basis for the house is $80,000.Since they are in their retirement years,they plan on moving around the country and renting.What is their recognized gain on the sale of the residence if they use the § 121 exclusion (exclusion of gain on sale of principal residence)and if they elect to forgo the § 121 exclusion? $\quad$ With exclusion $\quad$$\quad$ Elect to forgo a. $\$ 0 \quad\quad\quad\quad\quad\quad\quad \$ 0$ b. $\$ 35,000 \quad\quad\quad\quad \$ 35,000$ c. $\$ 0\quad\quad\quad\quad\quad\quad\$285,000$ d. $\$ 35,000\quad\quad\quad\quad\$285,000$ e. $\$ 285,000 \quad\quad\quad\quad\$ 225,000$

During 2014,Zeke and Alice,a married couple,decided to sell their residence,which had a basis of $200,000.They had owned and occupied the residence for 20 years.To make it more attractive to prospective buyers,they had the inside painted in April at a cost of $5,000 and paid for the work immediately.They sold the house in May for $800,000.Broker's commissions and other selling expenses amounted to $50,000.They purchased a new residence in July for $400,000.What is the recognized gain and the adjusted basis of the new residence?

Mandy and Greta form Tan,Inc. ,by transferring the following assets to the corporation in exchange for 5,000 shares of stock each. Mandy: Cash of $450,000 Greta: Land (worth $450,000;adjusted basis of $90,000). How much gain must Tan recognize on the receipt of these assets?

If the taxpayer qualifies under § 1033 (nonrecognition of gain from an involuntary conversion)and the amount reinvested in replacement property exceeds the amount realized,the basis of the replacement property is:

Taxpayer owns a home in Atlanta.His company transfers him to Chicago on January 2,2014,and he sells the Atlanta house in early February 2014.He purchases a residence in Chicago on February 3,2014.On December 15,2014,taxpayer's company transfers him to Los Angeles.In January 2015,he sells the Chicago residence and purchases a residence in Los Angeles.Because multiple sales have occurred within a two­year period,§ 121 treatment does not apply to the sale of the second home.

Casualty losses and condemnation losses on the involuntary conversion of a personal residence receive the same tax treatment.

An office building with an adjusted basis of $320,000 was destroyed by fire on December 30,2014.On January 11,2015,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 12,2015,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?