Exam 15: Property Transactions: Nontaxable Exchanges

Deidra has owned and occupied her principal residence for 10 years.Two and one-half years ago she married Doug who moved into her house.Doug has never owned a home.When Deidra is transferred to another city,she sells the house and has a realized gain of $425,000.Deidra can exclude the realized gain of $425,000 from her gross income under § 121 if she and Doug file a joint return.

Dennis,a calendar year taxpayer,owns a warehouse (adjusted basis of $190,000)which is destroyed by a tornado in October 2014.He receives insurance proceeds of $250,000 in January 2015.If before 2018,Dennis replaces the warehouse with another warehouse costing at least $250,000,he can elect to postpone the recognition of any realized gain.

Libby's principal residence is destroyed by a tornado.She is single and her realized gain is $360,000.Is it possible for Libby's recognized gain to be $0?

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 12,2014.In order to build a convention center,Lucinda eventually received qualified replacement property from the city government on March 9,2015.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?

Byron,who lived in New Hampshire,acquired a personal residence ten years ago when he was 52 years old.During this period he has occupied the residence for only eight months (out of 12)each year due to winter vacations in Florida.Is Byron eligible for exclusion of gain under § 121?

Louis owns a condominium in New Orleans which has been his principal residence for 12 years.He wants to be near Lake Ponchartrain since he enjoys water activities.Therefore,he sells the condominium.His original intent was to purchase a house in New Orleans near the lake.However,the cost of such properties far exceeded his sales proceeds.He was able to purchase a house on the lake in Covington,which is located across the causeway.He invested all of his sales proceeds in the Covington house.After two months of commuting over an hour to and from work each day,he decides to rent an efficiency apartment in New Orleans near his office.He spends the weekends and vacations at his home in Covington. a.Does Louis qualify for exclusion of gain under § 121? b.Does his Covington house qualify as his principal residence?

When boot in the form of cash is given in a like-kind exchange,recognized gain is the greater of the boot or the realized gain.

Define an involuntary conversion.

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.

Eunice Jean exchanges land held for investment located in Rolla,Missouri,for land to be held for investment located near Madrid,Spain.Her basis for the land given up is $450,000 and the fair market value of the land received is $500,000.Eunice Jean also receives cash of $45,000. a.What is Eunice Jean's recognized gain? b.What is her basis for the land received?

Myrna's personal residence (adjusted basis of $100,000)was condemned,and she received a condemnation award of $80,000.Myrna used the condemnation proceeds to purchase a new residence for $90,000.What is her recognized gain or loss and her basis in the new residence?

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?

Paula inherits a home on July 1,2014 that had a basis in the hands of the decedent at death of $290,000 and a fair market value of $500,000 at the date of the decedent's death.She decides to sell her old principal residence,which she has owned and occupied for 9 years,with an adjusted basis of $125,000 and move into the inherited home.On September 16,2014,she sells the old residence for $600,000.Paula incurs selling expenses of $30,000 and legal fees of $2,000.She decides to add a pool,deck,pool house,and recreation room to the inherited home at a cost of $100,000.These additions are completed and paid for on November 1,2014.What is her recognized gain on the sale of her old principal residence and her basis in the inherited home?

What effect do the assumption of liabilities have on a § 1031 like­kind exchange?

During 2014,Howard and Mabel,a married couple,decided to sell their residence.The residence has a basis of $162,000 and has been owned and occupied by them for 11 years.The house was sold in May for $395,000 with broker's commissions and other selling expenses being $24,000.They purchased a new residence in June for $400,000.What is the adjusted basis of the new residence?

Milt's building which houses his retail sporting goods store is destroyed by a flood.Sandra's warehouse which she is leasing to Milt to store the inventory of his business also is destroyed in the same flood.Both Milt and Sandra receive insurance proceeds that result in a realized gain.Sandra will have less flexibility than Milt in the type of building in which she can invest the proceeds and qualify for postponement treatment under § 1033 (nonrecognition of gain from an involuntary conversion).

Dena owns 500 acres of farm land in southeastern Maryland.Her adjusted basis for the land is $480,000 and there is a $400,000 mortgage on the land.She exchanges the land for an office building owned by Chris in Newark,New Jersey.The building has a fair market value of $900,000.Chris assumes Dena's mortgage on the land.What is the amount of Dena's recognized gain or loss on the exchange?

Bud exchanges a business use machine with an adjusted basis of $22,000 and a fair market value of $30,000 for another business use machine with a fair market value of $28,000 and $2,000 cash.What is Bud's recognized gain or loss?

Fran was transferred from Phoenix to Atlanta.She sold her Phoenix residence (adjusted basis of $250,000)for a realized loss of $50,000 and purchased a new residence in Atlanta for $375,000.Fran had owned and lived in the Phoenix residence for 6 years.What is Fran's recognized gain or loss on the sale of the Phoenix residence and her basis for the residence in Atlanta?

Gains and losses on nontaxable exchanges are deferred because the tax law recognizes that nontaxable exchanges result in a change in the substance but not the form of the taxpayer's relative economic position.